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SEBI believes that if fund companies pay less fees to brokers, it will also reduce the expenses of common mutual fund investors. But, the industry has not liked the proposal to reduce brokerage fees.
New Delhi. Market regulator SEBI is considering changing the proposed cap on brokerage fees paid by mutual fund companies to brokers. SEBI had proposed to reduce this fee significantly last month, but now after the objections of the industry, this proposal can be amended. According to a report by The Financial Express, SEBI had given several suggestions to reduce the cost of mutual funds and make them more transparent. One of these suggestions was that while buying shares in the cash market, mutual fund companies used to pay a maximum of 12 basis points (0.12%) as fees to brokers, which was proposed to be reduced to only 2 basis points (0.02%).
SEBI believes that if fund companies pay less fees to brokers, it will also reduce the expenses of common mutual fund investors. But, the industry has not liked the proposal to reduce brokerage fees. The mutual fund industry says that if brokerage fees become so low, they will not be able to get a good team of research analysts. It is with the help of these analysts that fund managers decide in which companies to invest. If research is weak, the returns of mutual funds may also fall.
SEBI will find a middle path
Mutual funds say that foreign investors and big hedge funds spend more on research. In such a situation, Indian mutual funds will become weaker than them. A source said that SEBI is trying to strike a balance between reducing the costs for investors and ensuring that the industry can function properly. If the fees are reduced too much, it will benefit the common investor investing in mutual funds, but the research quality of mutual funds may be affected.
According to sources, SEBI is listening to the arguments of the industry and there are indications that it may increase the brokerage fee cap slightly. That is, SEBI will not completely stick to 2 basis points and a middle path can be found. The round of meetings with the mutual fund industry is scheduled to last till mid-November. After these discussions, SEBI will take its final decision on the new brokerage fee rules.
