Shares of asset management companies (AMCs) ended with sharp losses of up to 11.3 per cent on Wednesday after market regulator Sebi decided to slash the charges levied on investors by mutual funds.
The scrip of Reliance Nippon Life Asset Management plunged 11.28 per cent to close at Rs 190 on the BSE. Intra-day, it dived 13 per cent to Rs 186.20 — its 52-week low. The company’s market capitalisation declined Rs 1,477 crore to Rs 11,628 crore.
Shares of HDFC AMC tumbled 8.55 per cent to end at Rs 1,408.55. Intra-day, it tanked 9.29 per cent to hit a one-year low of Rs 1,397. HDFC AMC’s market valuation fell by Rs 2,790.32 crore to Rs 29,859.68 crore.
HDFC Asset Management Company got listed on the bourses on August 6, 2018. HDFC AMC’s scrip has surged 28 per cent from its issue price of Rs 1,100 per share since then.
Commenting on Sebi’s announcement on significant changes to the total expense ratio (TER) structure, JM Financial Institutional Securities said in a report: “While the move is a positive step towards increasing reach and reducing costs for retail MF investors as also improving transparency, it has a negative impact on profitability for AMCs.”
In an overhaul of the fee structure of mutual funds, Sebi has decided to cap the total expenses for investment in such funds to 2.25 per cent.
The mutual fund industry must adopt the full-trail model of commission in all schemes, Sebi chairman Ajay Tyagi said on Tuesday.
A trail-fee model benefits distributors if their clients stay invested in schemes for a longer period.
At present, mutual funds pay distributors upfront commission as high as 2 per cent against the 1 per cent recommended by industry body Association of Mutual Funds in India (Amfi).
The Sebi board cleared the proposal to cap the maximum TER — the fee that mutual funds collect from investors every year to manage their money — for closed ended equity schemes at 1.25 per cent and for other equity schemes at 1 per cent.
The board has fixed a seven slab structure. For instance, with regard to open ended equity schemes, the highest expense ratio allowed to be charged for the first Rs 500 crore of assets will be 2.25 per cent. As AUM increase, the expense ratio will have to come down.
For the next Rs 500-750 crore, it will be 2 per cent. Between Rs 750 crore and Rs 2,000 crore, the fee will be 1.75 per cent. For Rs 2,000-5,000 crore, it will be 1.6 per cent and large equity mutual funds with assets above Rs 50,000 crore will be able to charge just 1.05 per cent.
For other schemes, the TER (excluding index, ETFs and fund of funds) will come between 2-0.80 poer cent respectively. All commission and expenses will be paid from the scheme only and not from the asset management company or any other route. Sebi also did away with upfront commissions.
