Shares of HDFC AMC, other asset managers in focus after SEBI proposes lower MF expense ratio

Shares of HDFC Asset Management Company Ltd. and other asset management peers such as Aditya Birla Sun Life AMC Ltd., UTI AMC Ltd., Nippon India AMC Ltd., Shriram AMC Ltd., will all be in focus on Wednesday, October 29, due to the latest proposals by market regulator Securities and Exchange Board of India (SEBI) on the expense ratios charged by Mutual Funds.

SEBI has proposed lowering the expense ratios charged by Mutual Funds.

An expense ratio is the cost of managing a fund or an ETF, which is described as a percentage of the fund's Assets Under Management (AUM). A lower expense ratio generally means that the funds invested by the investor are used for investment activities and not to manage the fund, which directly impacts returns.

The regulator has proposed lowering the cap on brokerage fees paid by mutual funds for cash market transactions to 2 basis points from 12 basis points earlier, while for derivative transactions, the cap is proposed to be lowered to one basis point from five basis points earlier.

Fund houses that venture into non-mutual fund management activities will have to do so through a separate business unit, the recent proposals have stated.

Statutory levies such as the Securities Transaction Tax (STT) and GST, along with the stamp duty will remain outside the limit of total expenses.

In addition to this, SEBI has also proposed performance-linked expense ratios for Mutual Funds, which may vary depending on how the particular scheme performance. These moves are not just to improve transparency and reduce hidden costs for Mutual Fund investors, but also to align the earnings of a fund manager with returns made by the investor.

A detailed performance-linked fee framework will be decided after consultation with the stakeholders.

The proposals are a change from SEBI's 2023 approach, which planned on including these charges in the total expenses, which was met with pushback from the industry.

Shares of HDFC AMC are up 36% so far in 2025, while those of Nippon India AMC are up 20% during the same period. UTI AMC shares are down 4% year-to-date, while Aditya Birla Sun Life AMC's shares are down 3% so far this year.