“Considering AMCs charge management and advisory fees for managing scheme assets, which should ideally include cost of research for selection of assets/securities for any scheme, it is hard to understand as to why significant expenses towards brokerage and transaction costs need to be separately incurred by fund houses and charged to investors in the name of research. Sebi has even proposed that AMCs can be allowed limited membership of the stock exchanges to cover for their transaction costs, as the mutual fund industry has expressed that the TER-level limits may discourage fund managers from churning portfolios for the benefit of the scheme’s investors. If such a high transaction cost is for the research reports, the arrangement cannot be considered as a soft dollar arrangement and investors end up paying twice for the research i.e., one which is charged as part of investment management and advisory fees and another which is covered under brokerage and transaction cost." On AMCs charging brokerage and transaction charges to the MF scheme as additional expenses, the regulator was of the view, “It has been observed that AMCs have executed trades through brokers who were not part of the top brokers (in terms of percentage share of the gross turnover of the stock exchange) and offered services at high brokerage costs compared to other empanelled brokers. Sebi wants AMCs to charge all additional expenses within TER, to encourage uniformity and transparency. The maximum permissible TER rate has been increased slightly by Sebi from 2.25%, but it has been done to allow the mutual fund industry to adjust the TER for absorption of the GST (goods and services tax) borne on the investment and advisory fees. This limit is available for AMCs that fall within the first AUM slab (upto ₹2,500 crore). The regulator also reviewed the AUM (assets under management) slab-wise structure, that determines the TER charges in the existing framework.įor the new framework, Sebi has proposed that at the AMC level, the maximum TER that can be charged for an equity scheme is 2.55%.
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