SEBI plans to whip fund expenses into shape

The markets regulator seeks uniformity in fund expenses, but its performance-based TER proposal causes intrigue

Last month, SEBI released a consultation paper on fund expenses. The 40-page document outlines investor expenses for mutual funds and signals the regulator’s intent to overhaul fund expenses.

Here’s an overview of the areas covered, as well as brief excerpts highlighting the proposed change.

TER limit should be inclusive of all expenses and charges

The paper states that “the Total Expense Ratio, as the term suggests, should, in the interest of transparency, be inclusive of the total expenses charged to investors at any point of time. However, as presently (sic) certain additional expenses are permitted to be charged over and above the TER; thus there is ambiguity and lack of transparency in the manner in which unitholders are charged by different mutual funds. Thus, it is desirable that TER reflects the maximum expense ratio that an investor may have to pay…”

Essentially, SEBI recognises the meaning of the word ‘Total’. The paper then makes some observations and some recommendations for each of the below areas:

1 Brokerage and transaction costs