SEBI Lowers TER Of Mutual Fund Investment Schemes

SEBI (Securities and Exchange Board of India) has announced changes in the total expense ratio (TER) of mutual funds, in its board meeting on September 18, 2018. The Regulator has lowered TER of mutual fund investment schemes in order to bring in clarity in the appropriation of expenses and reducing churning and mis-selling.

As per the SEBI’s announcement, all commission and expenses will be paid only from the MF scheme and not from the AMC/ Sponsor/ Associate/ Trustee, or any other means. Also, the Regulator said that the MF industry should implement the full-trail model of commission in all the mutual fund schemes without paying any upfront commission.

The TER for equity-oriented schemes will be a maximum of 1.25 percent. The TER for schemes other than equity oriented schemes will be a maximum of 1.00 percent.

The TER of mutual fund investment schemes including Exchange Traded Funds (ETFs), index schemes, and Fund of Funds (FoFs) will be a maximum of 1.00 percent. The TER for FoFs will be a maximum of twice the TER of the underlying schemes.

The total TER for FoFs investing mainly in the Liquid scheme, Index scheme and ETF schemes includes the TER of underlying schemes and will be a maximum of 1.00 percent.

The total TER of FoFs investing mainly in the active underlying schemes includes the TER of the underlying schemes and will be a maximum of 2.25 percent for equity-oriented schemes, and a maximum of 2 percent for schemes other than equity oriented schemes, according to The Economic Times.

Ajay Tyagi, Chairman of SEBI, said that the TER (total expense ratio) will be brought down considering economies of scale, in a press conference after the Regulator’s board meeting.

Madhabi Puri Buch, the whole-time member at SEBI, stated that the TER change could have an impact of 1,300 Crore Rupees to 1,500 Crore Rupees on the MF industry’s revenue.

Aashish Somaiyaa, Chief Executive Officer, Motilal Oswal AMC, said lowering TER of mutual fund investment schemes will help in passing on the benefits of efficiencies to investors, according to Bloombergquint.

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