Performance-Linked Fee for Mutual Funds in the Works: SEBI

While initiating an exercise to push mutual fund investments, markets regulator the Securities and Exchange Board of India (SEBI) is mulling to introduce performance-linked incentive schemes. A working group has been set up, which will be looking into the new proposal.

In this regard, the markets regulator will release a discussion paper projecting how to implement the scheme shortly, it stated on May 3, 2023.

Further, SEBI is also working on a new and improved framework to recognise efforts of distributors in tier-II and III cities and rural set ups after the scrapping of B-30 (Beyond top 30 cities) incentive scheme. 

Earlier, the markets regulator had permitted mutual funds to charge 30 basis points (bps) additional for retail flows from semi-urban cities, which was cited as incentive for distributors. 

SEBI is working on a proposal to introduce a new expenses structure through higher total expense ratio (TER) in case a particular mutual fund scheme outperforms the benchmark index on a consistent basis.

At the moment, the TER is worked up at a scheme level and it declines as the assets under management (AUM) of the scheme spike more than the predetermined limits.

The mutual funds industry in India is gaining new grounds as new investors to tune of more than 85 lakh new millennials have joined the mutual fund industry in the financial year (FY) 2019 and FY2023, as per a CII-CAMS report. 

There are also plans to introduce framework for a mutual fund Lite regulation for AMCs.

If the proposal sees the light of day, it will provide impetus to AUM growth across various asset classes in the next few years. 

After the final details emerge on the discussion papers, SEBI will seek comments from various stakeholders on the same.