India’s market regulator is planning to allow a new category of mutual fund schemes where asset managers’ fees will be partly linked to performance, according to an official document reviewed by Reuters and a source directly familiar with the matter. .
As part of the proposal, the Securities and Exchange Board of India (Sebi) wants to allow additional charges if a fund consistently outperforms a relevant benchmark index and delivers higher annual returns, according to an internal Sebi document.
Read also: SEBI fines two former auditors of CG Power for violations
The proposal to levy a performance linked fee on select mutual fund schemes has not been disclosed earlier. As per the plan, the base fee currently charged for mutual funds will be reduced and the additional fee will be based on performance.
If introduced, India would be one of a handful of major markets to introduce performance-linked charges for mutual funds.
“The regulator is considering this proposal as it is observed that many actively managed funds fail to outperform their benchmark index,” said a person with direct knowledge of the matter, as he declined to speak to the media. was not authorized.
Read also: MK Global hits upper circuit of 20% after SEBI approves mutual fund business proposal
“The option of additional charges may act as an incentive for the fund to deliver better returns,” said the source. Past performance will be used to decide whether a fund has outperformed the chosen benchmark.
There was no response from SEBI to a request for comment.
The proposal has been sent to SEBI’s mutual fund panel for implementation, the source said.
Read also: Investors will soon get direct access to AIFs and that too at low fees
Usually, such proposals are sent to an internal panel for deliberations, after which public comments are sought and a final decision is taken by SEBI.
The proposed changes are part of a comprehensive review of fees that India’s 39.46 trillion rupees ($480.26 billion) asset management industry currently charges its investors. SEBI Chairperson Madhabi Puri Buch said on March 28 that there is a need for transparency on the charges levied by mutual funds.
Currently, Indian asset management companies are allowed to charge a fee called total expense ratio, which ranges from 0-2.25% of the investment amount. The fee includes the total cost associated with managing the fund.
To attract more investors to invest in mutual fund schemes from Tier-2 and Tier-3 cities of India, the regulator also allows fund houses to charge additional fees for marketing and incentivize intermediaries.
However, during its inspection of 44 asset managers in India, Sebi found instances of misconduct, including incentive fees by different funds on the same investor, according to the document cited earlier.
To curb this, SEBI will allow additional charges only if an investor is buying a mutual fund for the first time, the document showed.
The text of this story is published from a wire agency feed without any modification. Only the headline has been changed.
catch all mutual fund news And updates on Live Mint. download mint news app To get daily market update & Live business News,