Mutual funds resist Sebi’s performance-linked fee

Mutual funds are pushing back against the Indian market regulator's proposal to introduce a fee linked to performance, arguing that continuous churn in a massive and diverse investor base makes such a calculation extremely complex.

- Apoorva Ajith & Srushti Vaidya

The Securities and Exchange Board of India (Sebi) announced a proposal on 28 October requiring mutual funds to charge a performance-based expense ratio in each scheme, along with other measures to revamp regulations in the sector.

Some fund houses have individually submitted feedback to Sebi on the complexities of charging a performance fee, six people aware of the matter told Mint. A discussion on the matter at the Association of Mutual Funds in India (Amfi) level has yet to happen, three of them said.

Queries emailed to Sebi and Amfi did not elicit responses.

The key concern for asset management companies (AMCs) is the complexity of calculating a performance-linked expense ratio of a product where investors enter and exit at different points. Two investors in the same scheme can experience very different returns, depending on when they invest, making it difficult to determine a single performance-based fee that applies fairly to all, the people said.