Mutual funds to get cheaper thanks to these changes proposed by SEBI

By: FPJ Web Desk | May 20, 2023

The Securities and Exchange Board of India (SEBI) recently proposed an overhaul of the charges collected on mutual funds from customers by adding peripheral or non-operating expenses of fund houses to the Total Expense Ratio (TER).

SEBI had observed that fund houses were charging money for research twice, since the clients first paid the fund manager's fee and then brokerage which was a lot higher than permissible limits under TER.

To reduce the TER burden, SEBI has proposed that some key expenses should be collected from the investor education fund to which fund houses add 1% of daily net assets every year, instead of adding all the burden on the investor.

Expenses to be paid from the investor education fund include B30 commission for distributors who bring in clients from places beyond Top 30 towns, and also incentives for those who get more women to invest.

SEBI also proposed that distributors who take investors from one mutual fund to another, should earn commission which is lower among the two schemes.

To make sure investors only pay for the returns they get, SEBI has proposed performance-linked TER. This means that if a fund hasn't made more money than indicated, then it returns the management fee, and investors get slightly more than their corpus on redemption.