SEBI chief Ajay Tyagi says need to rationalise expense ratio of funds

Ajay Tyagi, chairman of SEBI, speaks at a news conference after its board meeting at SEBI headquarters in Mumbai

Securities and Exchange Board of India (SEBI) sees scope for rationalising the existing total expense ratio (TER) of funds, Chairman of the market regulator Ajay Tyagi said.

He was speaking on the sidelines of the second AMFI Mutual Fund Summit held in Mumbai on August 23.

Two recent studies on TER commissioned by Morningstar and FIFA had completely conflicting views.

While the Morningstar study showed that India is the most expensive country among 25 nations in terms of TER, the FIFA study suggested that India was the least expensive country.

Speaking about the reports, Tyagi said that the market regulator does not want to get into discussion between two parties. "However, we feel that there is a scope to rationalise TER. Currently, we are reviewing TER structure very closely."

The SEBI chief further stated that the regulator had issued the current TER structure when the industry had assets of Rs 50,000 crore.

"Much has changed now. The industry is at Rs 24 lakh crore AUM. Hence, the industry needs to keep pace with these developments," he pointed out.

At a recent Mutual Fund Advisory Committee (MFAC) meeting, the committee constituted a six-member sub-committee to review the existing TER structure.

TER is a percentage of a scheme's corpus that a mutual fund house charges towards expenses including administrative and management.

Members of the sub-committee include Franklin Templeton Mutual Fund President Sanjay Sapre, AMFI CEO NS Venkatesh, Chief Risk Officer at Mahindra & Mahindra KN Vaidyanathan and ArthaYantra CEO Nitin Vyakaranam.

The sub-committee, set to meet in the first week of September, will look at the existing structure and provide its analysis on TER to SEBI.

Over the last few months, the capital markets regulator has revised the definition of top cities and those beyond top cities in terms of additional total expense ratio.

SEBI has also reduced expenses charged in lieu of exit to 0.05 percent.