India's Sebi may hike expense ratio of MFs

The Securities and Exchange Board of India may increase the total expense ratio for mutual funds from the present 2.25% and allow additional incentives for systematic investment plans.

According to a finance ministry official who relayed the information after a meeting with the fund managers, changes in tax structure for mutual fund can be taken up only in the next Budget.

The official also ruled out reintroduction of entry loads in the MF industry.

Sebi is also considering additional incentives for selling mutual funds in Tier 2 and Tier 3 cities.

The measures are being taken after Prime Minister Manmohan Singh, who took on the additional charge of the finance ministry recently, said the government needed to resolve issues relating to mutual funds and the insurance industry. Fresh inflows into mutual funds have dried up in the past three years, since entry loads, which were used to incentivise distributors, were banned in 2009.

“We took stock of the basic concerns of the mutual fund industry. They have given us a host of suggestions including on taxation. Changes in taxation cannot be done immediately. It can be taken up only in the next budget,” the official said. The MF industry has asked for tax sops on pension plans at par with the benefits available under the new pension scheme.

“The other changes in expense ratio, SIP and fungibility can be announced on July 17 after SEBI’s advisory’s board approves it. The total expense ratio hike could be conditional,” the official said, but did not elaborate the conditions and the quantum of hike.

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