SEBI Proposes Transparent Mutual Fund Fee Structure and Cuts Brokerage Caps

 India's markets regulator has proposed changes to mutual fund fee structures as it sought a more transparent break-up of costs that investors are charged, according a consultation paper published on its website on Tuesday.

Investors are charged a fee called expense ratio to pay for the mutual fund's operating expenses, which is deducted from net asset value (NAV) of the fund.

The proposed changes to expense ratio is part of the overall review of mutual fund regulations to remove redundant rules and usher in transparency, the regulator said.

The Securities and Exchange Board of India (SEBI) has proposed that these fees should exclude all costs including brokerage and taxes, and the break-up must be disclosed upfront.

The proposal marks a departure from SEBI's 2023 approach to include these charges in total expenses. That approach had been met with push back from the industry, which manages 75.61 trillion Indian rupees ($860.23 billion).

The regulator has also proposed lowering the cap on brokerage fees paid by mutual funds for cash market transactions to 2 basis points from 12 basis points.

For derivatives, SEBI has proposed cutting brokerage fees transactions to 1 basis point from 5 basis points.

The funds can voluntarily keep a differential or higher fee structure based on its past performance, SEBI said.

The regulator also proposed fund houses that venture into non-mutual fund management activities should do it through a separate business unit, and keep "all key employees segregated".