Shares of asset management companies in India declined sharply by up to 9% in early trade on Wednesday after the the Securities and Exchange Board of India (SEBI) proposed significant amendments to mutual fund regulations. The proposed changes include an overhaul of the total expense ratio (TER) structure and revised limits on brokerage charges.
Nuvama Wealth Management shares fell as much as 8.91%, followed by Nippon Life India Asset Management share price, which dropped 6.92%. HDFC Asset Management Company shares declined 6.39%, while 360 ONE WAM stock price fell 5.64%.
Other AMCs, including Aditya Birla Sun Life AMC, the recently listed Canara Robeco Asset Management Company, Anand Rathi Wealth, and UTI Asset Management Company, also witnessed declines of 3–4% each.
Sebi Proposals
In a consultation paper issued on October 28, the Securities and Exchange Board of India (SEBI) proposed to eliminate the additional 5 basis points (bps) that AMCs were previously allowed to charge across mutual fund schemes.
“However, to mitigate the impact of this change on the operations of AMCs, the first two slabs of the expense ratio for open-ended active schemes have been revised upward by 5 bps,” it added.
Additionally, Sebi revised the brokerage charge from 12 bps to 2 bps for cash market transactions and 5 bps to 1 bps for derivative transactions to bring clarity and transparency.
Sebi also proposed to exclude all statutory levy — STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax) and Stamp duty– from the expense ratio limits along with the present permissible expenses for brokerage, exchange and regulatory fees.
It said that a provision enabling expense ratio to be charged based on performance of a scheme has been introduced and the same would be voluntary for AMCs.
Also, Sebi has proposed simplifying eligibility norms for fund sponsors, digitizing investor communications such as annual reports, easing compliance by reducing the frequency of mandatory trustee meetings, eliminating newspaper advertisements for scheme changes replacing them with online disclosures and removing duplicative reporting.
Impact on AMCs
Analysts have warned of a potential hit to profitability of the asset management companies due to the sweeping changes to mutual fund fee structures.
Jefferies said that the move could bring down profit before tax by about 30%-33% for HDFC Asset Management Company and Nippon Asset Management in 2027.
Motilal Oswal Financial Services (MOFSL) said that the removal of an additional 5 bps TER can have an impact on the earnings of AMCs if they absorb the hit, or it could have an impact on distributors if the AMCs cut commissions to offset the hit. For customers, it will lower the TERs.
“If the distributors’ commissions are cut, Anand Rathi, 360 One Wam, and Nuvama could see earnings cut. Our estimates suggest that for Anand Rathi, a 5 bps cut in commissions could lead to about 4.8% hit on earnings. For 360 One, the hit would be ~2% on earnings if the commissions are cut on mutual funds, while the AMC hit of 5 bps would be less than 0.5%,” said MOFSL.
Prudent will be able to pass on the commission hit to the distributors, it added.
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