Why Sebi's new plan has irked mutual funds

The market regulator has suggested capping brokerage and transaction costs that mutual funds can charge investors.

- APOORVA AJITH

Fund houses are unhappy and their shares fell as much as 8% on Wednesday. Mint breaks down what this means for mutual funds and retail investors:

1 What changes has Sebi proposed?

The Securities and Exchange Board of India (Sebi) has proposed capping the brokerage and transaction costs that asset management companies (AMCs) can charge investors over and above the total expense ratio (TER). This ratio is the annual cost that a mutual fund charges its investors. Since TER covers fund management, research, and operational expenses, Sebi aims to prevent investors from being charged twice for it. Sebi recommends reducing brokerage limits from 0.12% (12 bps) to 0.02% (2 bps) for cash market transactions and from 0.05% (5 bps) to 0.01% (1 bp) for derivatives.

2 How will the capped charges affect MFs?