No final decision on mutual fund fee cap, seeking ‘sincere consultations’, says Sebi chairman

Sebi chairman said the regulator aims to expand India’s 130 million unique mutual fund investors, possibly doubling that base over the next five years, and that any policy decisions must account for both sides.

Capital market regulator Sebi’s consultation paper on mutual fund brokerage caps is intended to invite ‘sincere consultations’ from participants, and does not signal a final position in terms of a decision, Chairperson Tuhin Kanta Pandey said on November 7, while speaking at CNBC TV18's Global Leadership Summit in Mumbai.

The chairman was speaking on the recent consultation paper on mutual fund regulations and the proposal to reduce permissible brokerage payments by mutual funds from 12 bps to 2 bps. Pandey said Sebi’s process involves reconciling the perspectives of both investors and the mutual fund industry. “There are investors on one side, there is industry on the other. Jointly, they have to work together to develop the industry which has already grown three times in the last five years,” Pandey said.

Sebi chairman said the regulator aims to expand India’s 130 million unique mutual fund investors, possibly doubling that base over the next five years, and that any policy decisions must account for both sides.

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Tuhin Kanta clarified that consultation papers are not final decisions, but a process to gather rationale and responses from stakeholders. “This is not a position, but this is certainly food for thought for everyone to comment on this. And this, to my mind, is a very good process. That means we don't really decide something sitting in our buildings just like that," he added.

Addressing concerns that a two bps ceiling could leave mutual funds at a disadvantage compared to other institutional investors when they approach a brokerage, Pandey said Sebi would take cognizance of different rationales and examine whether there is any impact on the sell-side research ecosystem.

On suggestions that brokerage costs should be included in the overall management fee of an AMC instead of a fixed cap, Tuhin Kanta said that while regulations differ across jurisdictions where they many not even have a cap, what works somewhere else will not work in India. Pandey said India’s mutual fund framework must suit its own market context. “Something which is happening in the US is not simply replicable in India,” Pandey said, highlighting India’s success with its own digital public infrastructure model.

Tuhin Kanta Pandey added that Sebi is examining greater transparency in cost structures, including clarity on tax components, as part of its broader review of mutual fund expenses.