The regulator SEBI (Securities and Exchange Board of India) has proposed changes to make mutual fund fees simpler, cheaper, and more transparent for investors.

Here is the explanation in easy language:

• Mutual fund fees will go down: SEBI wants to reduce the overall fees (known as expense ratio) charged by mutual funds. For example, fees for open-ended equity funds could come down by around 0.15%, and for closed-ended funds by about 0.25%.

• No hidden charges: Right now, mutual funds include certain taxes and brokerage fees in their expense ratio. SEBI proposes these costs be shown separately so investors know exactly what they pay for. This makes the fee structure clearer.

• Removing extra 0.05% charge: Earlier, mutual fund companies charged an extra 5 basis points (0.05%) to cover marketing and distribution costs. SEBI wants to remove this extra charge to reduce costs for investors.

• Cutting brokerage fees: SEBI wants to reduce the maximum brokerage mutual funds pay for buying and selling stocks drastically—from around 0.12% to 0.02% for cash market trades. This helps fund houses save money.

• Performance-based fees (optional): SEBI proposes a new system where fund houses can charge higher fees if the fund performs well. This motivates fund managers to deliver better returns.

• Impact on mutual fund companies: While these changes are good for investors, companies like HDFC AMC and Motilal Oswal may see lower profits because they will earn less from fees and brokerage.?

In summary, SEBI's proposed plan makes mutual fund investing cheaper and more transparent for you, but asset management companies might feel some pressure on their earnings. This is why stocks of those companies fell after the proposal news came out.

source moneycontrol