AMCs under pressure after SEBI proposes uniform total expense ratio for MFs

Shares of asset management companies (AMCs) came under pressure during Friday’s session (May 19) after the market regulator SEBI, through a consultation paper, proposed a uniform total expense ratio for mutual fund houses.

The Securities and Exchange Board of India (SEBI) on Thursday proposed a uniform total expense ratio (TER) across mutual fund schemes in a bid to bring transparency to the costs charged to unitholders.

Individually, HDFC AM cracked most by over 3.5 per cent, followed by Aditya Birla Sun Life AMC - down almost 2 per cent, while Nippon Life India AMC slipped by 1.5 per cent. UTI AMC was marginally down by 0.5 per cent on the BSE today.

At present, SEBI allows asset management companies to charge unitholders of mutual funds four additional types of expenses over and above the specified TER limits. These are brokerage and transaction costs, additional TER for distribution commission for inflows from B-30 (beyond top 30) cities, good and services taxes and additional expenses for exit loads.

The TER is a percentage of a scheme's corpus that a mutual fund house charges towards expenses including administrative and management.

"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 and the investor should not be charged any amount over and above the prescribed TER limits," SEBI said in its consultation paper.

According to a report by BoB Caps, which was issued in January 2023, India’s mutual funds' asset under management (AUM) is on course for an 11 per cent compound annual growth rate (CAGR) over FY22-FY27E to Rs 64 trillion, as financial savings, product literacy, and digitisation are rising.

Besides, the rising share of individuals as compared to institutions, buoyed by SIPs, is deepening the market for equity funds, Mohit Mangal, an analyst with BoB Caps had said, maintaining a positive stance on AMCs. BoB Caps had assigned a ‘buy’ rating on Nippon AMC and UTI AMC, while it had a ‘hold’ call on HDFC AMC and AB Sun Life AMC.