MF stocks hit by proposed change in TER norms

Shares of four large asset managers reported mixed reactions Thursday after investment banking and wealth management firm Jefferies estimated that… Recent changes in the overall expense ratio (TER) will cut industry profits by Rs 1,400 crore.

Shares of HDFC AMC and Aditya Birla Sun Life AMC fell by one per cent and 2 per cent respectively at Rs 1,795 and 349. UTI AMC and Nippon India AMC rose by two per cent and 0.06 per cent at ₹663 and ₹236 respectively.

AMCs are already under pressure after the Union government scrapped the long-term capital gains tax benefit from debt mutual funds. Jefferies said in a report on Thursday that the new proposal by SEBI to introduce a consolidated TER will affect AMCs earnings by 13 per cent or Rs 1,400 crore.

TER is a percentage of the system pool that the mutual fund charges for expenses.

During FY22, AMC reported pre-tax profit of Rs. 10,900 crore. This was after absorbing ₹30,800 crore in expenditures, which – as per the new TER proposals – will be capped at ₹29,400 crore. As per Jefferies’ calculation, this equates to an under-recovery of Rs 1,400 crore or 13 per cent pre-tax profit and 4 basis points for average assets under management.

“However, we expect the industry to look forward to discussing with SEBI and passing part of the impact on to value chain participants,” Jefferies said.

The proposed changes are part of SEBI’s plan to improve transparency and pass on benefits more broadly to investors. The Market Regulatory Authority has also sought to improve the linkage between fees/exchange rate and fund performance.

level domain

PayMe CEO and co-founder Mahesh Shukla said SEBI’s proposal to allow limited membership of stock exchanges to cover their transaction costs could discourage fund managers from changing portfolios. He added that the proposal to calculate TER at the AMC level rather than at the scheme level would greatly help small AMCs by providing a level playing field.