The Securities and Exchange Board of India (SEBI) has released a new consultation paper proposing a major overhaul of mutual fund (MF) regulations. The move aims to simplify rules and lower costs for investors but could impact the earnings of Asset Management Companies (AMCs) and distributors such as Anand Rathi, 360 One, Nuvama, and others. This is SEBI’s second consultation paper on the subject, following the first released in May 2023.
According to a note by Motilal Oswal Financial Services, three key proposals in the consultation paper could have meaningful implications for the mutual fund ecosystem.
1. Removal of Additional 5 bps in TER
Before 2012, exit loads charged to MF schemes were used by AMCs to pay distribution commissions and marketing expenses. Later, SEBI directed that exit loads be credited to the scheme itself and allowed AMCs to levy an additional expense of 20 basis points (bps), which was subsequently reduced to 5 bps in 2018.
Now, SEBI has proposed removing this 5 bps charge altogether.
This move could reduce AMC earnings by around 7–8% if they absorb the cost themselves. Alternatively, if AMCs cut distributor commissions to balance the impact, distributors like Anand Rathi, 360 One, and Nuvama may face earnings pressure. Estimates suggest that a 5 bps reduction in commissions could hit Anand Rathi’s earnings by about 4.8% and 360 One’s by nearly 2%, while AMCs would see less than a 0.5% impact. Meanwhile, Prudent Corporate Advisory Services is expected to pass on the commission hit to distributors, limiting its direct earnings impact.
2. GST and Statutory Levies Outside TER
Currently, GST on management fees is charged over and above the Total Expense Ratio (TER), while other statutory levies are included within it. SEBI now proposes that TER limits exclude all statutory levies, ensuring that any future tax or statutory changes are passed directly to investors.
This change is expected to be neutral for AMCs, as it won’t affect their profitability.
3. Reduction in Brokerage Rate Caps
At present, AMCs can charge up to 0.12% brokerage on cash market trades and 0.05% on derivatives transactions. SEBI has proposed to lower these to 2 bps (0.02%) for cash trades and 1 bps (0.01%) for derivatives.
While this won’t significantly impact AMC earnings, it will reduce broker realizations, bringing more transparency and lowering overall expenses for investors.
