Mutual Funds Seek Higher Brokerage Cap: Industry Pushes Back on SEBI’s 2 BPS Proposal
Mutual fund houses have formally requested that the Securities and Exchange Board of India (SEBI) reconsider its proposal to cap brokerage fees at 2 basis points (bps). The proposal, part of a wider overhaul of the Total Expense Ratio (TER) framework, has met significant resistance, as industry executives believe the drastic reduction is “not feasible. The Current Disparity and Industry Plea
Fund houses currently pay brokers commissions of up to 12 bps for trade execution. The proposed 2 bps cap represents an 83% reduction from the current upper limit, which the industry believes will severely impact operations.
Impact on Support: The primary concern conveyed to SEBI on Monday’s meeting is that the steep cut could negatively affect the research and trade execution support provided by brokers, potentially impacting fund performance.
Operational Reality: Fund house CEOs have sought a more practical and manageable range of around 6–7 bps. A senior MF executive stated: “A direct move from 12 to two basis points will be difficult to implement, especially for smaller schemes.”
SEBI’s Response: SEBI reportedly “appeared willing to hear” the industry’s operational concerns, suggesting the final framework may incorporate a revised, higher cap.
Part of the Broader TER Overhaul
The brokerage cap is one component of SEBI’s comprehensive plan to revise the TER framework, which dictates how much mutual funds can charge investors.
Consultation: The broader changes were outlined in a consultation paper issued on October 28.
Other Changes: The proposed revisions include excluding statutory levies like the securities transaction tax (STT) and stamp duty from the TER calculation.
Brokerage firms have also raised concerns, arguing that a steep cut in commissions could compromise the quality of services offered to fund houses. SEBI is expected to review all industry feedback before finalizing the new framework.
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