Shares of several capital market companies fell sharply on October 29, following the Securities and Exchange Board of India’s (SEBI) proposal of major changes to mutual fund fee structures, which could impact the profitability of asset management firms.

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Market Reaction Analysts’ Warning SEBI’s Proposal Explained Impact on the Industry

Market Reaction

Stocks of HDFC Asset Management Company (HDFC AMC) and Motilal Oswal Financial Services led the decline, falling as much as 7% during the session. This marked HDFC AMC’s biggest single-day fall since June 2024.

Nippon Asset Management shares also slipped by 2.8%, while wealth management firms such as Nuvama Wealth and 360 One Wam declined by up to 4%.

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Analysts’ Warning

Analysts at Jefferies noted that SEBI’s proposed fee structure overhaul could significantly hit profitability in the coming years.

“The move could bring down profit before tax by about 30–33% for HDFC AMC and Nippon AMC by 2027,” Jefferies said in its note.

SEBI’s Proposal Explained

According to SEBI’s consultation paper released on October 28, the regulator is seeking to:

Simplify the mutual fund fee structure for better transparency.
Introduce a clearer break-up of costs charged to investors.
Review expense ratios and brokerage fees currently levied by mutual funds.

In addition, SEBI proposed to discontinue the 5 basis points (bps) charge that mutual funds currently impose on equity funds where an exit load is levied.

The proposal aims to create a more transparent and investor-friendly cost structure across the mutual fund industry.

Impact on the Industry

The announcement triggered a sharp sell-off in listed asset and wealth management companies as investors anticipated margin pressure and lower profitability.
While SEBI’s move aims to enhance transparency for investors, the industry may face short-term challenges as the revised structure could impact fee income and revenue growth.

Conclusion

The market’s reaction reflects investor concerns over the potential impact of SEBI’s reforms on profitability for asset management firms. With the consultation paper still under review, the final framework will determine how significantly these firms’ business models are affected in the coming years.