SEBI Proposes Major Overhaul of Mutual Fund Charges and Business Rules

The Securities and Exchange Board of India (SEBI) has proposed major reforms impacting mutual fund investor charges and operations. A key proposal overhauls the Total Expense Ratio (TER) structure to boost transparency. SEBI suggests drastically cutting brokerage costs: from 0.12% to 0.02% for cash markets and 0.05% to 0.01% for derivatives. The revised TER would encompass all fees, including base expenses, brokerage, and regulatory charges. SEBI also plans to eliminate additional charges for distribution commissions and marketing. To support AMCs, a slight 5 bps increase is proposed for the first two expense ratio slabs of open-ended active schemes. Statutory levies like STT and GST may be excluded from TER, passing future tax changes directly to investors. Business restrictions on AMCs are also being eased, allowing them to manage non-pooled funds for large investors under strict 'Chinese wall' protocols. Other proposals include performance-linked fees and clarification on NFO costs.

**Impact** These changes are highly relevant for Indian investors, potentially lowering costs and increasing transparency. For AMCs, it signifies revenue model adjustments and new business opportunities with added compliance. The Indian mutual fund industry faces structural evolution. Rating: 8/10

**Difficult Terms** * **Total Expense Ratio (TER)**: The maximum annual percentage of a mutual fund's assets spent on operating the fund, including management fees, administrative costs, and other expenses. It's deducted from fund returns. * **Assets Under Management (AUM)**: The total market value of investments a mutual fund manages for its investors. * **Brokerage**: Fees paid to a broker for executing a buy or sell transaction of securities. * **Basis Points (bps)**: A unit of measure in finance equal to 0.01% (1/100th of a percent). * **New Fund Offer (NFO)**: The period when a mutual fund launches a new scheme and invites initial investments. * **Securities Transaction Tax (STT)**: A tax levied on the value of securities traded on stock exchanges. * **Goods and Services Tax (GST)**: A consumption tax applied to most goods and services in India. * **Stamp Duty**: A tax levied on legal documents like property deeds or stock transfers. * **Asset Management Company (AMC)**: The firm responsible for managing a mutual fund's investments. * **Non-pooled Funds**: Investment vehicles that manage assets for specific, often large, clients rather than pooling money from many investors. * **Chinese Walls**: Metaphorical barriers within a firm to prevent confidential information transfer between departments, thus avoiding conflicts of interest. * **Winding-up Costs**: Expenses incurred when a mutual fund scheme is closed or liquidated.