SEBI Proposes Standardized Investor Fees For Mutual Funds

The Securities and Exchange Board of India (SEBI), India's capital market regulator, has put forward a proposal aimed at enhancing transparency in mutual fund investments.

According to a consultation paper released by SEBI, the regulator suggests implementing standardized fees for mutual fund houses. The proposal states that the total fee, known as the expense ratio, should encompass all charges, including brokerage fees paid by fund houses for the acquisition of shares or other securities. The consultation paper was circulated on Thursday evening, seeking inputs from stakeholders in the mutual fund industry, reuters reported.

"It is desirable that the total expense ratio (TER) reflects the maximum expense ratio that an investor may have to pay and hence it should be inclusive of all the expenses permitted to be charged to an investor," SEBI said.

The chief executive of a prominent investment house said the recommendations appeared nice on paper but would be tough to implement.

"The final norms on how much additional fees are allowed and how it will be charged will be complex," said the executive, who did not wish to be named.

Brokerage is currently outside the overall permissible fees and uncontrolled, which according to the commission has resulted in certain fund companies breaching mandated regulatory limitations.

This restriction, according to the CEO of a mid-sized fund company, would deter fund managers from merely buying and selling equities.

SEBI also proposed that, instead of the current practise of charging separate fees for each mutual fund plan, the fund house should charge a single standard cost.

The regulator stated that it has observed investors being asked to move from existing mutual fund investments to new, more expensive plans. According to the report, a single fee at the fund house level will prevent such mis-selling practises.

Sebi stated that the consultation document will serve as the foundation for final guidelines after receiving feedback from stakeholders by June 1.

SEBI also advocated in the consultation document that funds be allowed to charge additional fees for investments from smaller cities in order to broaden the reach of mutual funds. However, the regulator emphasised that this can only be paid in the event of new individual investors.

SEBI also advised that funds charge higher fees in order to attract new individual female investors.