To boost the mutual fund industry, SEBI’s advisory panel has favoured raising the total expense ratio by 20-25 basis points. However, fund houses can charge as high as 30 basis points if they were able to increase their penetration. The panel is not in favour of any change in the capital requirement for fund houses.
Capping debt schemes
Another key recommendation by the panel is capping debt schemes’ exposure to any sector to 30 per cent. The aim is to reduce exposure of debt schemes to the NBFC sector, as they have the largest exposure in NBFCs followed by banking and PSU sectors.
Also, investors investing up to Rs 2 lakh will be allotted units on the same day’s NAV. For above Rs 2 lakh, NAV of the units will be the date of realisation of the amount invested.
According to a highly-placed source, “The advisory committee has recommended on the lines of the industry’s demand for a higher expense ratio along with flexibility.” If the flexibility is provided, it will give greater freedom to fund houses to spend less on management fee and more on distribution.
Service tax
The committee also suggested levying service tax in addition to the total expense ratio. “If you add both, the effective increase in expense for an investor will be between 15-25 per cent,” the source added. At present, service tax is part of the total expense ratio.
The proposals will now be placed before the SEBI’s next board meeting tentatively scheduled for August 16.
At present, on a ceiling of 2.25 per cent total expense ratio, one per cent is the sub-ceiling for management fee, while rest is for operating expenses. If flexibility is provided, there will be no such ceiling. However, the committee has shelved the proposal to change capital norms for fund houses.
“This means the advisory body is in favour of status quo for the minimum capital requirement of Rs 10 crore for setting up an asset management company. At the same time, it has shelved the proposal for fund houses investing Rs 50 lakh in a new scheme.”
The advisory body met after the Finance Ministry had detailed discussions with mutual funds to re-energise the sector. The discussions assume significance as the Prime Minister, after taking over Finance portfolio, had said, “On the financial sector side, we need to see how we can improve matters. There are issues about the mutual funds’ industry which need to be resolved.”
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