- Date : 29/06/2023
- Read: 3 mins
Wondering why SEBI deferred the total expense ratio overhaul? Explore the benefits of opting for mutual funds with lower expense ratios to optimise your SIP investments!
- SEBI defers TER overhaul decision
- Mutual funds achieve economies of scale
- SEBI to release the second consultation paper soon
- Consider investing in funds with lower expense ratios
SEBI has deferred its decision on overhauling the total expense ratio (TER) for mutual funds, leaving investors seeking alternative avenues. Following extensive consultation and industry feedback, SEBI Chairperson Madhabi Puri Buch acknowledged the need for re-evaluation. A second consultation paper is forthcoming, offering fresh opportunities for higher financial returns. Meanwhile, it is crucial for individuals to consider the advantages of investing in funds with lower expense ratios, enhancing their SIP ventures. This article explores SEBI's recent decision, the anticipation for the upcoming consultation paper, and the benefits of investing in funds with lower expense ratios.
SEBI delays TER overhaul
SEBI Chairperson Madhabi Puri Buch revealed that the mutual fund (MF) industry provided data showing the achievement of economies of scale over the past five years, leading SEBI to realise the need for revised proposals. Buch emphasised SEBI's reliance on concrete numbers in decision-making and indicated that a second consultation paper on total expense ratio (TER) would be released soon. She hinted that the upcoming proposals would be less strict, indicating a shift in SEBI's stance on fees charged by fund houses.
SEBI Consultation Paper: Enhancing Transparency in TER
SEBI had earlier released a consultation paper on May 18, seeking public opinions on proposals to increase transparency in the Total Expense Ratio (TER). The aim was to bring in economies of scale. The paper suggested including brokerage fees and Goods & Services Tax (GST) of fund management fees within the TER, as they currently sit outside its purview.
The Driving Factors Behind SEBI's Consultation Paper
Given below are the main reasons which led SEBI to bring out Consultation paper on May 18, 2023.
- SEBI discovered that fund houses were charging higher brokerage fees than the permissible Total Expense Ratio (TER), sometimes even double. Investors, unaware of these additional charges, had been assuming they were only paying the TER.
- To prevent mutual funds and brokers from switching investors from their current funds to new ones.
Also Read: Business cycle mutual funds: What are they, and how do they differ from diversified mutual funds?
Overall, the decision by SEBI to defer the TER overhaul is a positive development for investors. It shows that SEBI is willing to listen to the feedback from the industry and that it is not afraid to make changes if necessary. The release of the second consultation paper will provide more clarity on SEBI's stance on TER, and it will give investors an opportunity to provide their feedback. In the meantime, investors should continue to invest in mutual funds, but they should choose funds with lower TERs.
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