Sebi’s Mutual Fund Fee Cuts Could Slash AMC Profits by 10%: Jefferies
Global brokerage Jefferies has raised alarms over the Securities and Exchange Board of India’s (Sebi) plan to reduce mutual fund fees, warning that asset management companies (AMCs) could see profits drop by 6-10%. The move threatens India’s ₹50 lakh crore mutual fund industry, which has been a key driver of retail investment growth.
Sebi’s Proposed TER Cuts: Key Changes
Sebi’s consultation paper recommends lowering the total expense ratio (TER), the fee mutual funds charge investors. Currently:
– Large funds (>₹50,000 crore AUM): Max 1.05% TER
– Small funds (<₹500 crore AUM): Max 2.25% TER
The regulator argues that larger funds should pass on economies of scale to investors, but AMCs fear revenue losses.
Jefferies’ Profitability Warning
Top AMCs like HDFC AMC, Nippon India AMC, and ICICI Prudential AMC could face significant earnings pressure:
– 6-10% profit decline due to lower management fees.
– Revenue squeeze may force cost-cutting or AUM growth strategies.
A Jefferies analyst noted, “While Sebi’s intent is pro-investor, AMCs will need to adapt quickly to maintain margins.”
Industry Resistance: Will Fee Cuts Hurt Innovation?
The Association of Mutual Funds in India (AMFI) and major AMCs oppose drastic cuts, citing risks:
– Reduced profitability may discourage new fund launches.
– Smaller AMCs could face consolidation risks.
– Distribution costs remain unaddressed, potentially disrupting MF distribution networks.
Investor Gains vs. AMC Sustainability
Pros for Investors:
– Lower TER = higher net returns
– Better accessibility for first-time investors
Challenges for AMCs:
– Pressure to maintain performance with tighter budgets.
– Potential shift to passive funds (ETFs/index funds) or PMS for revenue diversification.
What’s Next for the Mutual Fund Industry?
Sebi must balance investor benefits with AMC viability. Key developments to watch:
1. Final TER regulations after stakeholder feedback.
2. AMC strategies to offset fee cuts (e.g., cost optimization, passive fund push).
“The industry needs a phased approach to avoid destabilizing the market,” said a Mumbai-based financial advisor.
Conclusion
Sebi’s fee cuts aim to boost investor returns but risk squeezing AMC profits. The outcome will shape India’s mutual fund landscape—investors should monitor updates as the debate unfolds.
