Shares of four large asset management companies reported a mixed reaction on Thursday after investment banking and wealth management firm Jefferies estimated that the recent changes in total expense ratio (TER) will shave off industry’s profit by ₹1,400 crore.
Shares of HDFC AMC and Aditya Birla Sun Life AMC were down one per cent and two per cent, respectively, at ₹1,795 and ₹349. UTI AMC and Nippon India AMC were up by two per cent and 0.06 per cent at ₹663 and ₹236, respectively.
AMCs are already under pressure after the Union government removed the long-term capital gain tax benefit from debt mutual funds. The fresh proposal by SEBI to bring a uniform TER will impact AMCs profit by 13 per cent or ₹1,400 crore, said Jefferies in a report released on Thursday.
The TER is a percentage of a scheme’s corpus that a mutual fund house charges towards expenses.
During FY22, AMCs reported pre-tax profit of ₹10,900 crore. This was after absorbing ₹30,800 crore of expenses, which — as per the new TER proposals — will be capped at ₹29,400 crore. According to Jefferies’ calculation, this equates to under-recovery of ₹1,400 crore or 13 per cent of pre-tax profit and 4 basis points of average AUM.
“However, we expect that industry will look to discuss with SEBI and pass part of the impact on to value chain participants,” said Jefferies.
The proposed changes are part of SEBI’s plan to improve transparency and pass the benefit of larger scale to investors. The market regulator has also sought to improve linkage of charges/TER with fund-performance.
Mahesh Shukla, CEO & co-Founder, PayMe, said SEBI’s proposal to allow limited membership of the stock exchanges for AMCs to cover their transaction costs may discourage fund managers from churning portfolios. The proposal to calculate TER at the AMC level instead of the scheme level will significantly help small AMCs by providing a level playing ground, he added.