1. Sebi may Bring Down Cost of
Investing in Mutual Funds
Markets regulator may cap total allowable expense at 1.5% of total
assets

2. Contd..
Cost of investing in mutual funds is likely
to come down with the capital market
regulator Sebi planning to curb high
commissions that fund houses pay
brokers.At present, mutual funds in
India can spend a maximum 2.5% of the
assets under management (AUM) -an
expense they recover from investors
over time. The regulator is now
exploring ways to cap total expense and
stagger the payout to brokers and
distributors who bring in business.

3. Contd..
Sebi believes it's time to lower the 2.5%
cap which has prevailed for close to 20
years during which the industry's AUM
has surged.
The mutual fund advisory committee of
Sebi met on Monday to discuss the
subject of high commissions paid by
fund houses amid concerns of possible
mis-selling and portfolio churning, said
a person aware of the deliberations.

4. Contd..
The advisory committee has
recommended that the total expense
ceiling should be reduced to 1.5% of
daily net assets in case of
equityoriented schemes. It also
suggested that total expenses that can
be charged in closed-ended schemes
be capped at 1.5%, with an extra 30
basis points for inflows from beyond
the top 15 cities.

5. Contd..
Total expense ratio includes fund
management fee, registrar and transfer
agent fees, and expenses like brokerage
and fund accounting costs. “If a scheme
generates a return of 20% on a gross
basis, investors get an appreciation of
17.5% because the fund house takes 2.5%
as expenses. If the total expense ratio is
pegged at 1.5%, the cost of investing in
mutual funds will come down by 1% for
investors,“ said a senior fund official.

6. Contd..
“A lower expense structure is better
from an investor perspective but for
the mutual fund industry, the entire
dynamics will change,“ said
Raghvendra Nath, MD of Ladderup
Wealth Management. “A distributor in
tier-II or tier III cities may not find it
appealing to sell the mutual fund
product any more. Also at present,
only few fund houses are profitable
and reducing the expense ratio will put
a question mark on the future of the
industry,“ Nath said.

7. Contd..
More Disclosure Sebi may also
mandate higher disclosures in terms of
commissions paid by a scheme. Fund
houses may have to mandatorily
disclose in all their offer documents
the commission payable as a
percentage of AUM by a scheme in a
year. Besides, fund houses as well as
the industry lobby Association of
Mutual Funds of India (Amfi) will have
to disclose on their websites the
commissions paid annually.
Distributors too will have to spell out
in the application form the commission
that is charged to investors.

8. Contd..
Sebi is examining a new rule to
introduce the `tied-agent' model
where a distributor would be
allowed to sell schemes of only one
fund house for the first few years.
As per the current practice, fund
houses pay upfront commissions
from their coffers and then recover
the trail fees through the annual
charges that they levy on schemes.

9. Contd..
The Indian mutual fund industry manages
assets worth Rs 10.67 lakh crore, of which 67%
is mobilised by distributors and brokers while
the balance 33% is direct investments.Almost
90% of investments in equity schemes and 55%
in debt schemes are through distributors.
Close to 90% of the AUM of over Rs 2 lakh core
from retail investors is channelised through
distributors.
The regulator has been also examining
commission models in developed countries. In
2012, the UK ended the commission-based
system of advisor remuneration.

10. Parveen Kumar Chadha… THINK TANK
(Founder and C.E.O of Saxbee Consultants & Other-Mother )
Email :-saxbeeconsultants@gmail.com
Mobile No. +91-9818308353
Address:-First Floor G-20(A), Kirti Nagar, New Delhi India Postal
Code-110015