How many equity mutual funds can get cheaper after SEBI’s Total Expense Ratio (TER) proposal
SEBI's Total Expense Ratio (TER) Impact: As many as 171 of 378 equity mutual fund schemes may need to adjust their Total Expense Ratios (TERs).
As many as 171 of 378 equity mutual fund schemes may need to adjust their Total Expense Ratios (TERs) to align with SEBI’s proposed TER ceiling, according to a research note by Fisdom.
As per the research, the variance between the proposed and current TERs ranges from 0.54% to 18.54%. Among the top 10 Asset Management Companies (AMCs), four of them have an average TER that exceeds the proposed TER ceiling.
Category-wise, as many as 5 Small Cap funds, 7 Large Cap Funds, 6 ELSS funds, 7 Mid Cap funds, 7 Multi Cap Funds, 8 Flexi Cap Funds and 95 Sectoral/Thematic funds have TER beyond the SEBI’s proposed limit. These schemes may have to bring down their TER if SEBI’s proposal gets implemented.
TER is used as a measure of the total costs associated with managing and operating a mutual fund.
The Securities and Exchange Board of India (SEBI) recently sought public comments and suggestions on its consultation paper proposing a uniform TER structure for fund houses.
As per SEBI’s proposal, TER slabs should be at the level of the AMC and not at the scheme level and inclusive of all costs and expenses, including GST on management fees, brokerage and transaction costs, B-30 incentive etc.
If the SEBI’s proposal gets implemented, then “AUM of open-ended schemes, wherein slab-based TER is presently applicable, may be bucketed into Equity based AUM (equity and equity related instruments) and other than equity-based AUM of the AMC (other than equity and equity-related instruments),” Fisdom research note said.
According to the research note, these regulatory announcements primarily favour smaller AMCs.
“This can be observed when assessing the bottom 15 AMCs, as nine of them do not have any scheme that surpasses the AMC TER,” the note said.
“This observation implies that the proposed changes aim to create a more level playing field for smaller
AMCs by ensuring their TERs remain competitive in comparison to their larger counterparts. The
imposition of TER ceilings is intended to foster equitable market conditions and enhance transparency
within the mutual fund industry,” it added.