The consultation paper, issued this week, suggests a reduction in the Total Expense Ratio (TER) and a sharper cap on brokerage and transaction costs. The regulator aims to improve transparency, rationalise fees, and ensure that investor returns are not eroded by high charges.
Larger AMCs to face greater margin pressure
Industry experts believe that the proposal’s impact will be uneven, with larger fund houses likely to feel a sharper profitability hit due to their high assets under management.
Shivani Nyati, Head of Wealth at Swastika Investmart, said the move “will primarily benefit investors by lowering investment costs and improving fee clarity,” but noted that “large AMCs will see a proportionately greater decline in revenues from management fees.”
She added that the removal of the additional 5 basis points (bps) allowance and the steep reduction in brokerage limits “will pressure margins across the board,” even as smaller AMCs receive marginal relief through slightly higher TER caps for lower AUM slabs.
Operational efficiency and transparency
According to Puneet Singhania, Director at Master Trust Group, SEBI’s proposal is “a constructive step that enhances investor value and encourages cost efficiency.”
He said the move will compel fund houses to improve operational discipline and transparency, aligning India’s mutual fund ecosystem with global standards.
However, Singhania acknowledged that both large and emerging AMCs may face short-term profitability challenges, especially in managing distribution and marketing costs under the revised expense limits.
Impact on commissions and distributors
Sandeep Bagla, CEO of Trust Mutual Fund, noted that SEBI’s recommendations could reduce fund expenses by 15-20 bps.
“While investors will benefit from lower costs, AMCs will likely earn less and pass part of the reduction to distributors as lower commissions,” he said.
He added that larger schemes and fund houses may see a higher proportional decrease in both fees and commissions.
Sector outlook
Brokerage analyses indicate that AMC earnings could decline by up to 20% depending on implementation. The impact, analysts say, will depend on how effectively fund houses adjust operations to the new cost structure.
Market experts believe that despite near-term pressure, the proposals will help strengthen investor trust, improve transparency, and support sustainable industry growth.
