The Securities and Exchange Board of India (SEBI) may consider the mutual fund industry’s concerns regarding the proposed expense ratio and cost structure changes. Sources indicated that the regulator is open to reviewing reasonable issues and data-backed feedback from the industry.

Contents

Third Round of Consultation on Expense Ratio Flexible Approach and Data-Based Revisions Industry Scale and Regulatory Review Proposed Expense Ratio Reductions

A regulatory official told Moneycontrol, “We are open to considering all reasonable issues of the industry. If there are concerns, they will come to us in the form of feedback and will be examined.”

Third Round of Consultation on Expense Ratio

According to the official, this marks the third consultation on the subject. SEBI had earlier released a consultation paper in May 2023, followed by detailed discussions with the mutual fund industry before releasing the latest proposal.

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Flexible Approach and Data-Based Revisions

A second source said the new proposals were framed using data and inputs from the industry and are not rigid in nature. “If any issues are there, they will be corrected if supported by data and logic,” the person added.

Industry Scale and Regulatory Review

With the mutual fund industry’s assets under management (AUM) now exceeding ₹75 lakh crore, compared to ₹10 lakh crore earlier, sources said a review of existing rules is timely. The regulator believes that rule changes are necessary as the industry has significantly expanded in size.

Proposed Expense Ratio Reductions

As part of its proposal, SEBI has suggested reducing the expense ratio of:

Open-ended schemes by 15 basis points (bps)
Close-ended schemes by 25 basis points (bps)

The mutual fund industry has expressed concerns over potential profitability impact due to these changes, along with possible effects on distributor commissions.

Industry insiders noted that if profitability declines, fund houses may reconsider branch expansion plans.

Key Highlights

SEBI is open to reviewing mutual fund industry feedback.
Third round of consultation on expense ratio and cost structure.
AUM of the mutual fund industry has grown from ₹10 lakh crore to ₹75 lakh crore.
Proposed cuts: 15 bps for open-ended, 25 bps for closed-ended schemes.
Industry concerns over profitability and distributor commissions.

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