SEBI Approves Changes in Mutual Fund Regulations for Transparency

The market regulator SEBI has approved significant changes to mutual fund regulations on Wednesday to enhance transparency. These changes include adjustments to the expense ratio framework and brokerage fee limits. The main goal of these proposals is to bring regulatory clarity, reduce unnecessary duplication, and make compliance easier.

Details of the Proposed Changes

SEBI Chairman Tuhin Kant Pandey informed that the SEBI board has approved a proposal where all statutory charges – STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax), and Stamp Duty – will be excluded from the expense ratio limit.

Additionally, this expense ratio limit will now be referred to as the ‘basic expense ratio’. Currently, all statutory charges, except GST on management fees, are included within the TER (Total Expense Ratio) limit for mutual fund schemes. Under the proposed changes, the expense ratio will be kept separate from statutory charges so that any future changes in statutory charges will directly reach investors.

Changes in Brokerage Fees and Additional Charges

The board also decided to remove the additional five basis point (bps) charges previously imposed by Asset Management Companies (AMCs) on mutual fund schemes. Moreover, to protect the interests of investors and ensure that they are only charged appropriately once, the brokerage fees will be reduced from 0.12% to 0.06% for cash market transactions and from 0.05% to 0.02% for derivative transactions.

Additionally, the regulator announced that a provision to charge expense ratios based on scheme performance will also be introduced, although this will be voluntary for AMCs.