Revised consultation paper on mutual funds' TER expected within a week

SEBI’s earlier proposal had suggested inclusion of Securities Transaction Tax (STT) and Goods and Services Tax (GST) on advisory services in Total Expenses Ratio.

The new constitution paper on Total Expense Ratio (TER) regulations for mutual funds (MFs) is expected to be released for public consultation with a week, sources privy to the matter told CNBC-TV18. Significant changes have been made to the new consultation paper on TER regulations, sources said.

The mutual Fund industry has been in anticipation of the new draft paper on TER regulations since a month. Madhabi Puri Buch, Chairperson at Securities Exchange Board of India (SEBI) had in June said that the market regulator will release a revised consultation paper on the same. She said that industry would be quite pleased with the new paper.

SEBI’s earlier proposal had suggested inclusion of Securities Transaction Tax (STT) and Goods and Services Tax (GST) on advisory services in Total Expenses Ratio. Also, SEBI’s consultation paper had suggested that TER should be calculated at asset management company (AMC) level rather than scheme level.

The mutual fund industry had asked the regulator to keep STT and GST out of TER calculation. The mutual fund industry had also represented how economies of scale have been passed on to customers.

The total expense ratio represents the overall cost borne by mutual funds in managing and operating a mutual fund scheme. It encompasses various expenses, including fund management fees, administrative charges, and other operational costs. It is calculated as a percentage of the scheme's average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses.

Currently TER ratio for listed AMCs for equity schemes are in between 1.5-1.6 percent.