SEBI Likely to Increase Expense Ratio For MF Distributors

The Securities and Exchange Board of India (SEBI) is likely to increase expense ratio but unlikely to restore entry loads on mutual funds. This move is expected to pay more commissions to mutual fund distributors, who deserted the industry in the absence of right amount of incentives.

Expense ratio is the fee charged by a fund house to manage and operate the mutual fund of the investor. The charges may include management fees, administrative fees and other small operating expenses.

Experts says, an increase in managing expenses will boost mutual fund industry. The distributors of mutual fund industry wants SEBI to

  • Increase total expenses by 25bps
  • Want entry load to be brought back
  • Greater flexibility in levying expenses on schemes
  • Shifting service tax to investors
  • Mutual funds to enter into pension plans
  • Extension of Rajiv Gandhi Equity Savings scheme to mutual funds

The government has promised to mutual fund industry to have a greater role in pension and insurance sector. It may allow greater flexibility to Asset Management Companies (AMCs) in managing expenses.

At present, Mutual Fund companies are allowed to charge up to 2.25% as expense ratio. Of this 2.25%, only 1% is allowed to accept as management fees and 1.25% has to be mandatorily meet recurring expenses, including annual trail commissions, auditor & registrar charges, dealing charges to enroll brokers.

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