MF fee rules to hit small agents

A regulatory overhaul of how commissions are paid will shake up the segment estimated to account for about half of India’s 281 lakh crore in mutual fund assets: small distributors.

- Apoorva Ajith

Industry experts say they will be forced to partner with larger peers to survive, driving consolidation.The Securities and Exchange Board of India (Sebi) in December approved a revised framework for total expense ratio (TER) limits. It has two components: the base expense ratio (BER) and all statutory and regulatory levies, such as goods and services tax (GST), securities transaction tax, stamp duty, and regulatory fees, which will be charged separately over and above the base cost.

For equity-oriented schemes, BER will now range from 2.10% for assets up to ₹500 crore to 0.95% for assets more than ₹50,000 crore. It comes into effect from April 1.

With GST moving outside BER, compliance under the indirect tax regime will increase. Small distributors not registered for GST will be forced to partner with platforms that can help ful-fil compliance requirements.

The move marks a fundamental change for the industry as about 90% of the distributors, who contribute about 40-50% of the mutual fund industry’s assets under management