SEBI proposes changes in mutual funds' Total Expense Ratio to curb mis-selling
The Hindu
SEBI’s proposed sweeping changes to mutual funds’ TER will curb practices of unnecessary switching of schemes.
SEBI’s proposed sweeping changes to mutual funds’ Total Expense Ratio (TER) will curb distributor practices of unnecessary switching of schemes and pushing new fund offerings for higher commissions, experts said on Friday.
TER accounts for the fees and expenses charged by asset management companies (AMCs).
The Securities and Exchange Board of India (SEBI), in its consultation paper on Thursday, proposed the introduction of performance fees for funds.
It proposed two approaches in this regard but also suggested testing the models under the Regulatory Sandbox.
Considering the underperformance of most mutual fund schemes, the proposal to introduce performance-linked expense ratios along the lines of Portfolio Management Services (PMS) is a step in the right direction, Gopal Kavalireddi, Head of Research at FYERS, said.
Globally, many markets have performance fee structures, but the prevalence of these is limited. Many times, performance fee structures tend to be too complex for investors to understand, Kaustubh Belapurkar, Director - Manager Research at Morningstar India, said.
In addition, the regulator has suggested that TER should be levied at the AMC level and not at the scheme level at present. Moreover, slabs should be bifurcated as equity and non-equity-based assets under management (AUM).
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