What do new MF regulations on TER and brokerage costs mean to you?

Prior to 2012, mutual funds (MFs) were allowed to charge an exit load to the scheme. The charges collected were used by asset management companies (AMCs) for payment of distributors’ commission and other marketing /selling expenses. Later, MFs were mandated to credit exit load to the scheme and AMCs were allowed to charge 20 basis points (bps) as additional expense to the scheme. The additional charge, was reduced from 20 bps to 5 bps in 2018. The provision for additional expense of 5 bps was transitory in nature and now SEBI plans to remove it. However, to reduce the impact of the proposed change on AMCs, the Total Expense Ratio (TER) has been increased by 5 bps for first two slabs of open-ended equity schemes.

For assets under management (AUM) up to ₹500 crore, MFs can charge 2.5 per ce