Sebi Mutual Fund Rules: SEBI Revolutionary Changes in Mutual Funds Investors Cost Will Decrease Know New Rules
Sebi Mutual Fund Rules: The Securities and Exchange Board of India (SEBI), the regulator of the Indian stock market, has announced historic changes to Mutual Fund regulations, marking the end of a long wait for investors. By overhauling the outdated rules from 1996, SEBI has introduced a series of measures aimed at benefiting investors. The primary objective of these changes is to bring transparency to the investment process and reduce the burden of extra costs on the common people. Once these new guidelines are implemented, investors will save significant money, and fund operations will become much clearer.
The End of Total Expense Ratio (TER)
Until now, mutual fund companies used to collect various charges from investors under the guise of ‘Total Expense Ratio’ (TER). This included everything from GST, brokerage, stamp duty, to management fees. As a result, an ordinary investor could not understand exactly how much money was being deducted for which purpose.
To remove this opacity, SEBI has mandated the introduction of the ‘Base Expense Ratio’ (BER). Under the new rule, Asset Management Companies (AMCs) must disclose only the core fee or charge they take for their services. This ensures that investors will now clearly know exactly how much the fund houses are charging as service fees.
Major Cuts in Fund Management Costs and Brokerage
To increase returns for investors, SEBI has tightened the reins on the maximum expenses or expense ratios of various funds. The upper limit or capping of fees that fund houses used to charge previously has been reduced. This will directly benefit investors.
The new fee structure is detailed below:
| Fund Type | Old Fee (Max) | New Fee (Max) |
|---|---|---|
| Index Funds & ETFs | 1.00% | 0.90% |
| Equity Fund of Funds | 2.25% | 2.10% |
| Large Funds (>500 Cr) | 1.05% | 0.95% |
| Small Funds (<500 Cr) | 2.25% | 2.10% |
Additionally, the brokerage charges incurred during buying and selling shares were ultimately borne by the investors. SEBI has made significant cuts to these costs as well. For the cash market, brokerage has been reduced from 0.12 percent to 0.06 percent, and for derivatives, it has been cut from 0.05 percent to 0.02 percent. This reduction in costs will increase the Net NAV, which will help in boosting investor returns.
Changes in Nomination and Other Facilities
SEBI has not only focused on costs but has also introduced several new rules for the convenience and protection of investors.
- Nomination Facility: From now on, an investor can nominate up to a maximum of 10 people in their portfolio. Previously, this number was much lower.
- Exit Load: Earlier, fund houses could charge an additional buffer fee of 0.05 percent as an exit load. Under the new rules, this extra charge has been completely abolished.
- Fund Manager Accountability: Under the ‘Skin in the Game’ policy, fund managers will now have to invest a part of their compensation into the schemes they manage. This is expected to make fund managers more cautious and responsible regarding investments.
These new steps by SEBI are considered a landmark decision for the Indian stock market and the mutual fund industry. Market experts believe that this will increase the interest of common people in investments and help them generate better returns in the long run.
Disclaimer: This article is for informational purposes only. Investment in mutual funds is subject to market risks. Please read all scheme-related documents carefully before investing and consult a financial advisor if necessary.
