Sebi mulls bringing in new expense structure for MFs

Plans to link expense ratio to AMCs’ total AUM in an asset class

- ABHISHEK KUMAR & KHUSHBOO TIWARI

Tof The Securities and Exchange Board of India (Sebi) is discussing with mutual funds (MFs) a proposal on introducing new total expense ratio (TER) slabs linked to the total equity and debt assets by replacing the current ones that are linked to assets of an individual scheme.

Senior MF executives confirmed that Sebi had held discussions on this matter with AMCs. Such a change is expected to lead to a lower TER cap for bigger asset management companies (AMCS). TER is the expenses charged by AMCs for managing a scheme.

If the new model is implemented, fund houses will have to charge TERs based on the category of the scheme, which means all schemes of a fund house that come under a particular category, equity or debt, will have the same TER.

At present, schemes have different TERS based on their size. The lower the assets under management (AUM) of a scheme the higher is the cap on TER under the current framework.