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SEBI to make expense ratio flexible for AMCs

The regulator may approve a plan that will see fund houses pay an additional incentive to distributors to bring in funds from tier-II and tier-III cities in the country

August 09, 2012 4:37 IST | India Infoline News Service
To revive the mutual fund industry, market regulator SEBI (Securities and Exchange Board of India) is planning to consider a revival plan for the mutual fund business, which includes getting distributors to search for new investment again, media reports said.

At present, in case of expense ratio, asset management companies (AMCs) have a fixed annual maintenance charge fee and breakup of other costs. The regulator is considering to make the expense ratio flexible—that is a fund house can now decide what it wants to charge as fee and what portion it can keep aside for its marketing costs and distributor’s fees.

Currently, an AMC charges exit load and shares a portion of it with the distributors. But, soon SEBI will consider if the exit load is shifted to the fund corpus and if the distributor is compensated through a higher expense ratio.

The regulator may also approve a plan that will see fund houses pay an additional incentive to distributors to bring in funds from tier-II and tier-III cities in the country. Over 65% of AUM (assets under management) of fund houses came from just five cities in India, the Association of Mutual Funds in India (AMFI) data indicated in June. The five metro cities included Mumbai, New Delhi, Bengaluru, Kolkata and Chennai which contributed Rs. 46.5 million AUM.

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