homemarket Newsstocks NewsAMC stocks surge on SEBI's move to publish new paper on total expense ratio — HDFC AMC, Nippon Life rise 11%
AMC stocks surge on SEBI's move to publish new paper on total expense ratio — HDFC AMC, Nippon Life rise 11%
Capital market regulator Securities and Exchange Board of India (Sebi) has deferred its decision to rationalise the total expense ratio (TER), or the expenses that mutual fund (MF) schemes can charge their investors. Here's how AMC stocks are reacting
The shares of asset management companies (AMCs) took the spotlight on Friday, with HDFC AMC and AB Sun Life AMC witnessing significant gains of nearly 11 percent and 4.5 percent respectively during early trading. This surge was prompted by the announcement from the Securities and Exchange Board of India (SEBI) regarding a significant change to the old draft Total Expense Ratio (TER) proposal.
AMC stocks had been underperforming in recent months due to SEBI's TER notification. However, with the regulator's assurance of releasing a new draft that is expected to appease the mutual fund industry, investor sentiment experienced a positive shift. HDFC AMC stocks soared by 10.9 percent, reaching an intraday high of Rs 2,276.95 per share on the BSE. Nippon Life India Asset Management also witnessed a substantial surge of nearly 11 percent, reaching Rs 278.70 on the BSE. Additionally, UTI AMC observed a 7 percent rise, reaching Rs 781.80 on the exchange.
At the time of writing this, the benchmark S&P BSE Sensex was trading at 64,295.36, recording a gain of 380 points or 0.59 percent. Simultaneously, the NSE's Nifty was trading at 19,067.10, reflecting an increase of 95 points or 0.5 percent.
The revision of SEBI's TER proposal has injected optimism into the market, leading to a positive response from investors and driving the upward trajectory of AMC stocks.
The Sebi chairperson Madhabi Puri Buch said that the regulator will soon come up with a second consultation paper around rationalising the TER. Buch said that Sebi's new decision is based on the feedback from mutual fund industry.
The total expense ratio, commonly referred to as TER, represents the overall cost borne by mutual funds in managing and operating a mutual fund scheme. It encompasses various expenses, including fund management fees, administrative charges, and other operational costs.
Previously, SEBI had issued a consultation paper presenting proposals for the rationalisation of TER in mutual funds. The paper suggested that TER should be calculated at the asset management company (AMC) level rather than at the scheme level. This approach aims to provide a more holistic view of the expenses incurred by mutual funds.
Additionally, the consultation paper put forth the recommendation that TER should incorporate additional components such as securities transaction tax (STT), goods and services tax (GST) on investment, and advisory fees. By including these factors in the computation of TER, a more comprehensive understanding of the costs associated with mutual funds can be achieved.
Another significant proposal in SEBI's consultation paper pertained to the disclosure norms for "high-risk" Foreign Portfolio Investors. According to the paper, FPIs holding more than 50 percent in one group or having an investment of over Rs 25,000 crore in the Indian equity market would be classified as "high-risk" FPIs.
Earlier, the Association of Mutual Funds in India (AMFI) had 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.
Hailing the move, A Balasubramanian, MD and CEO at Aditya Birla Sun Life AMC thanked SEBI Chairperson. He said that he is happy the the capital market regulator acknowledged the need to revisit the proposed regulation.
"The benefit of scale should accrue to investors as mutual fund (MF) industry size grows. The profit margin is currently not in sync with growing size. Absolute profits of the MF industry are going but profit margin is coming down. So, if all costs get added to TER, then the product will become unviable. Distributors have also given feedback to SEBI on TER proposals. Significant reduction in TER can lead to investors shifting from mutual funds to other products," he told in an exclusive interaction with CNBC-TV18.
First Published: Jun 30, 2023 10:27 AM IST
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