What’s the story
The Securities and Exchange Board of India (SEBI) is set to hold a meeting tomorrow, with top executives from asset management companies (AMCs).
The main agenda of the meeting will be the contentious proposal to cap fees paid by fund houses to brokers for executing trades.
The discussion will also cover market development, compliance issues, and other challenges faced by the industry.
Proposal to cap broker commissions under SEBI’s scrutiny
The proposal to cap broker commissions at two basis points (bps) is being considered by SEBI, with an industry plea to relax this cap to about 6-7bps.
The current structure allows fund houses to pay as much as 12bps in commission.
This proposed measure is part of SEBI’s larger plan to overhaul costs charged by mutual funds, known as the total expense ratio (TER).
Meeting to include top industry leaders
The meeting will be attended by Venkat Chalasani, CEO of the Association of Mutual Funds in India (AMFI), and other industry leaders from SBI MF, HDFC MF, ICICI Prudential MF, Aditya Birla Sun Life MF, among others.
While such meetings between SEBI’s chairperson and mutual fund chiefs occur once a year, this is the first meeting with the current SEBI Chairperson Tuhin Kanta Pandey, providing a platform for discussing key issues affecting the industry.
SEBI’s proposal to overhaul mutual fund costs
In a consultation paper dated October 28, SEBI proposed an overhaul of how mutual funds compute TER.
The proposal includes excluding the statutory levies such as securities transaction tax (STT) and stamp duty, and cutting broker commissions.
However, the plan has been met with resistance from sell-side brokers who provide research services to MFs and execute trades on their behalf.
SEBI’s proposal aims to prevent double charging for research
SEBI’s proposal seeks to reduce brokerage paid by mutual funds from 12bps to 2bps in the cash market and from 5bps to 1bps for derivatives.
The move is aimed at preventing investors from being charged twice for research, once through brokerages and again through the asset management company’s own research.
However, this cap could hit brokers’ revenue and may increase costs for mutual funds looking to expand their research teams.