Sebi on Mutual Fund Investor: To bring transparency in Mutual Funds, SEBI has proposed Uniform Total Expense Ratio (TER) in MF scheme. This is considered a game-changer for mutual funds, designed to bring more transparency and fairness in the industry. Uniform TEI will facilitate cost comparison across funds. However, this move can have an impact on short-term fund companies. According to experts, the new rule of SEBI may have a slight impact on the margin of the Asset Management Firm (AMC). This can undercut the market by 4 to 5 per cent, promoting a retail-friendly environment in the fast-growing mutual fund market.
What is TER?
The amount that the mutual fund company has to spend to manage the scheme is called TER. SEBI has said in its consultation paper that TER reflects the maximum expense ratio that an investor may have to pay. In this, it has been said to include all the expenses of the investor and not to charge more than the amount exceeding the fixed TER limit.
SEBI’s new proposal for MF investors
- SEBI has proposed to include brokerage and transactions within the TER limit.
- Apart from this, all expenses and costs of investment including Security Transaction Tax (STT) have been proposed to be within the TER limit.
- It is also suggested that there should be uniformity in charging every expense to the investor of Regular Plan and Direct Plan.
- The only difference between the TER of the Regular plan and the Direct plan should be the cost of distribution commission.
- The capital markets regulator suggested that with an increase in the TER, the unit holder should be given an exit option at the current net asset value without any exit load.
- It has been recommended that direct upfront payment by the investor and deduction from the investment shall not be allowed.
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