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SEBI Cuts Total Expense Ratio For Mutual Funds Schemes, AMCs Shares Decline

JAVED SAIFI | 0
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| September 19 , 2018 , 12:34 IST

In order to provide more returns to investors of Mutual fund schemes, the Securities Exchange Board of India (SEBI) revised the total expense ratio (TER) on Tuesday.

"The  Assets Under  Management  (AUM) of the mutual fund industry in India has grown manifold over the years. As on August 31, 2018, the AUM of the industry has crossed INR 25 lakh crore. While the AUM has grown multiple times, the benefit of economies of scale has not been fully shared with the investors," the statement reads.

In a press release, SEBI said, "TER for equity-oriented schemes shall be a maximum of 1.25 per cent and for other than equity oriented schemes shall be a maximum of 1 per cent."

Also Read: SEBI To Introduce Accredited Investor Concept To Limit Investors Equity Exposure

"The TER for Index schemes, Exchange Traded Funds (ETFs) and Fund of Funds shall be maximum of 1 per cent. FoFs investing primarily in Liquid, Index and ETF schemes: Total TER (including the TER of underlying schemes) shall be maximum of 1 per cent. FoFs investing primarily in active underlying schemes: Total TER (including the TER of the underlying schemes), shall be maximum of 2.25 per equity-oriented oriented schemes, and a maximum of 2 per cent for other than equity oriented schemes."

As the SEBI cut total expense ratio, the shares of asset management companies (AMCs) slumped over the fears of the impact on revenue and profitability. Shares of HDFC AMC declined to 7.6 per cent to Rs 1,422  and shares of Reliance Nippon Life Asset Management Ltd (RNAM) slipped 8.2 per cent to Rs 196.55 a share.

The slab wise TER was introduced in 1996 under the SEBI  (Mutual  Funds)  Regulations,  1996 that have not been changed since then.

HOW CUT IN TOTAL EXPENSE RATIO (TER) WILL BENEFIT MUTUAL FUNDS INVESTORS?

Let's say if a fund generates 7 per cent return with TER of 4 per cent then the 7 per cent gain will be diminished to 3 per cent. 

The total expense ratio is a measure of total costs associated with operating and managing the mutual funds.