Distributors urge Sebi to revisit new MF expense rules

A new expense ratio rule from India’s market regulator could cut the income of small mutual fund distributors (MFDs) by as much as a fifth, prompting an industry body to warn of an uneven playing field.

- Apoorva Ajith

In a letter dated 12 March, the Foundation of Independent Financial Associates (FIFA) asked the regulator to revisit key elements of the revised expense ratio framework, saying it is built on a flawed assumption that all distributor payouts attract 18% goods and services tax (GST).

That assumption, it said, does not hold for a large part of the industry. Nearly half of India’s distributor base either falls below the GST threshold or operates under the composition scheme, leading to a lower effective tax incidence.