Ahead of the Securities and Exchange Board of India (SEBI) board meeting that is likely to discuss the proposed total expense ratio (TER) changes, CNBC-TV18 has learnt from industry sources that the Association of Mutual Funds in India (AMFI) has written to SEBI raising pertinent questions over the inclusion of goods and services tax (GST), transaction costs, security transaction tax (STT) and brokerage in the total expense ratio.
AMFI has said that the industry is agreeable to add GST in the total expense ratio, even though as a principle, GST being a statutory levy should be charged over and above the TER. So AMFI has told SEBI that the tax can be made a part of the TER in such a way that the GST is added at all possible levels.
AMFI has further said that the TER slabs in the consultation paper may need further review to add the GST impact at various levels.
Further, the industry body has suggested that STT being a government levy should not be part of the TER.
In the letter, accessed by CNBC-TV18, AMFI has said that since STT, brokerage and transaction costs are levied based on value and quantum of a transaction, it won't make sense to add these to the TER.
AMFI has said that if these charges are added to TER, this could deter fund managers in undertaking investment transactions as there could be a possible breach of the TER limits in high-churn portfolios.
Industry experts believe that fund houses will have to take a hit on their management fees to avoid the breach of TER limits.
It is important to note that STT, brokerage and transaction costs are levied upfront based on the transaction value, whereas TER is applied on a daily basis, hence annualised.
In its consultation paper in May, SEBI had proposed bringing all the charges including GST and transaction cost under the ambit of TER. Sources have told CNBC-TV18 that SEBI will discuss the issues raised by AMFI in its board meeting tomorrow.
First Published: Jun 27, 2023 10:11 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
