SEBI proposal - expenses charged to mutual fund investors
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Below comments from Suman Bannerjee, CIO, Hedonova, a US based Hedge fund, investing in alternative assets and P2P lending.
The proposed revamp of expenses charged to mutual fund investors by the Securities and Exchange Board of India (SEBI) is indeed significant and aims to bring about several positive changes within the mutual fund industry. Here are some potential impacts of these proposed changes:
* Shift to AMC-level calculation of Total Expense Ratio (TER): Moving from scheme-level to AMC-level calculation of TER will encourage greater transparency and comparability among different mutual fund offerings. It will provide investors with a clearer understanding of the expenses associated with investing in a particular AMC's funds.
* Fostering competition and benefiting smaller AMCs: The shift to AMC-level TER calculation could foster healthy competition within the industry. Smaller AMCs may benefit from this change as it levels the playing field, enabling them to compete more effectively with larger players.
* Introduction of performance-based TER: Tying fees to fund performance can align the interests of the fund managers with those of the investors. This approach incentivizes fund managers to generate positive returns for investors and can potentially lead to better fund performance overall.
* Enhanced transparency and investor protection: By including all charges within the TER, SEBI aims to ensure greater uniformity and clarity for investors. This can help investors make more informed decisions about the funds they choose to invest in. The increased transparency also serves to protect investor interests.
* Potential cost savings: The proposed changes have the potential to generate cost savings for investors. With a clearer breakdown of expenses and the possibility of competitive pressures among AMCs, there is a likelihood of reduced expenses, which can translate into cost savings for investors.
Overall, these proposed changes by SEBI have the potential to positively impact the mutual fund industry by promoting transparency, fair competition, and investor protection. However, it's important to note that these are proposed changes, and their actual impact will depend on their implementation and any subsequent modifications made by SEBI.
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