Copyright news18
Shares of capital market firms fell up to 7% on October 29 after the Securities and Exchange Board of India (SEBI) proposed sweeping changes to the fee structures of mutual funds — a move aimed at lowering investor costs and improving transparency. HDFC Asset Management Company and Motilal Oswal Financial Services led the losses, sliding as much as 7%. For HDFC AMC, it marked the steepest single-day fall since June 2024. Analysts warned that the proposed changes could impact short-term profitability for asset managers. What SEBI proposed SEBI’s draft includes a sharp cut in brokerage expense caps — from 12 basis points to 2 for cash market trades, and from 5 to 1 for derivatives — to reduce transaction costs and boost investor returns over time. The regulator also plans to introduce performance-linked fees, allowing expense ratios to vary based on fund performance. This would align fund manager incentives with investor outcomes, rewarding consistent performance while discouraging underperformance. Additionally, SEBI suggested segregating non–mutual fund businesses into separate entities to prevent cross-subsidisation and safeguard investor money. Impact on AMCs Brokerage estimates indicate the proposed cuts could dent profits of listed fund houses by 10–23%, with firms such as HDFC AMC, Nippon India AMC, and Motilal Oswal AMC seeing stock declines of 6–8%. However, experts believe margins will normalise as the industry expands. What Investors Should Know? For retail investors, the reforms promise: Greater transparency and predictable charges Closer alignment of fees with fund performance Lower costs supporting long-term wealth creation Even a modest reduction in expenses can add up significantly over years of compounding. The consultation is open until November 17, after which SEBI will finalise the framework. Investors can continue their SIPs as usual but should track expense ratios closely once the final rules are in place.
