Securities and Exchange Board of India (Sebi) Overhaul
The Securities and Exchange Board of India (Sebi) has revamped the cost structure of the ₹80 trillion domestic mutual fund (MF) industry to enhance transparency for investors while considering asset managers' interests. This new framework will be effective from April 1.
Introduction of Base Expense Ratio (BER)
- The BER represents the fee charged by an asset management company (AMC) for management services.
- BER excludes pass-through costs such as brokerage, securities transaction tax (STT), stamp duty, and exchange fees, which will be disclosed separately.
- BER varies by scheme category and corpus:
- For open-ended equity-oriented schemes: 2.10% for assets up to ₹500 crore to 0.95% for assets over ₹50,000 crore.
- For non-equity schemes: 1.85% to 0.70% across similar asset slabs.
- Reduced BER for close-ended schemes; AMCs may charge a lower BER to attract customers.
Regulatory Changes and Decisions
- Sebi did not unbundle research and broking charges due to the failure of a similar model in Europe.
- Rationalized brokerage caps:
- Cash market transaction brokerage ceiling reduced to 6 basis points from 8.59 bps.
- Derivatives brokerage cap lowered to 2 bps from 3.89 bps.
- Overhaul of mutual fund and stock broker regulations to streamline rulebooks.
- Deferred decision on conflict of interest disclosure due to privacy concerns.
IPO Reforms and Investor Incentives
- New framework for managing shares locked in or pledged at the IPO stage.
- More retail-friendly IPO disclosures with QR codes and an abridged prospectus.
- Incentives for retail investors in public issues of debt securities.
- Raised the threshold for high-value debt-listed entities (HVDLEs) to ₹5,000 crore from ₹1,000 crore, easing corporate bond issuances.
- Allowed credit rating agencies to rate unlisted debt securities and more financial instruments.
Additional Reforms
- Relaxations for the transfer of securities held in physical mode.
- No final decision on conflict of interest disclosures due to employee concerns.
Sebi Chairman highlighted that these reforms ensure a balance between benefiting investors and protecting asset managers, contributing to India's capital market maturity and economic goals.
