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SEBI to increase expense ratio of mutual funds: Ministry

Mutual funds are allowed to charge various administrative and maintenance expenses annually

July 13, 2012 2:06 IST | India Infoline News Service
Market regulator SEBI (Securities and Exchange Board of India) may increase the expense ratio of mutual funds from the current 2.25% with conditions, according to the finance ministry.

Mutual funds are allowed to charge various administrative and maintenance expenses annually. A 25 basis points increase in the expense ratio would result in mutual funds’ annual income increasing by as much as 11%.

SEBI would allow additional incentives for systematic investment plans (SIPs), the ministry said on 12th July after a meeting with fund managers. However, changes in tax structure for mutual fund would be taken up only in the next Budget.

The ministry has also ruled out reintroduction of entry loads in the mutual fund industry. SEBI is also considering additional incentives for selling mutual funds in smaller cities. The MF industry has asked for tax benefits on pension plans equal to the benefits available under the new pension system (NPS).

The other changes in expense ratio, SIP and fungibility can be announced on July 17 after SEBI’s advisory’s board approves it. The total expense ratio hike could be conditional. However, no information is provided on the conditions and quantum of hike.

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