India’s mutual fund industry could face a moderate reduction in profitability if the Securities and Exchange Board of India (SEBI) implements its proposed changes to fund-cost regulations, according to a new analysis by Nomura. The regulator’s consultation paper, released earlier this week, sets out several reforms aimed at lowering investor costs, including the removal of the additional 5-basis-point levy on schemes that charge exit loads, a 15-bps reduction in total expense ratio caps across equity AUM slabs, and a steep cut in the brokerage-fee ceiling.
Nomura identifies the withdrawal of the 5bps levy as the most financially significant change for asset managers, and its estimates show the impact will vary across firms. For HDFC AMC, the largest equity manager, for example, the removal would eliminate roughly Rs 334 crore in annual revenue based on FY27 forecasts. This is equivalent to a 7.3 per cent reduction in its forecast FY27 profit before tax, and an 8.6 per cent hit to core PBT. Nomura notes that while the impact is meaningful, HDFC AMC’s strong distribution franchise and track record of managing regulatory transitions should allow it to partially offset the revenue loss by recalibrating distributor payouts.
Nippon India Mutual Fund (NAM) would feel a similarly sharp effect in percentage terms, though the absolute amount is lower because of its smaller equity asset base. Using NAM’s FY27 forecast equity AUM, Nomura estimates the removal of the levy would reduce revenue by about Rs 186 crore. This translates to a 7.9 per cent decline in FY27 PBT and a 9.1 per cent reduction in core PBT. The report adds that NAM’s relatively high exposure to small- and mid-cap schemes makes its earnings more sensitive to market fluctuations, but the company too is expected to share the burden with distributors.
SEBI’s proposal to reduce TER caps by about 15bps appears negative at first glance, but Nomura estimates the impact on AMC earnings will be negligible. This is because the regulator also plans to exclude statutory levies such as GST on non-management-fee expenses, STT, stamp duty and exchange-related charges from the definition of TER. Since many equity schemes already incur statutory levies equal to or exceeding the proposed TER reduction, especially smaller funds, Nomura believes the exclusion will more than offset the headline cut.
A further proposed reduction in the cap on brokerage charges, from 12bps to 2bps for cash trades and from 5bps to 1bps for derivatives, is also unlikely to affect AMC profitability, the report suggests. These costs are typically passed directly to investors and can be managed by consolidating brokers. While tighter cost structures may increase operating pressure on active managers and nudge the industry further toward passive strategies, Nomura argues the transparency and lower transaction costs ultimately benefit investors.
The consultation remains open for public feedback until 17 November. Despite the potential revenue headwinds, Nomura maintains a positive stance on both HDFC AMC and NAM, citing strong growth prospects, resilient franchises and the capacity to renegotiate distributor economics. It retains a neutral view on UTI AMC.
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