Mutual fund body argues steep TER cuts could disrupt new launches, distributor networks, and AMC profitability
AMFI Pushes Back on Steep TER Cuts
The Association of Mutual Funds in India (AMFI) is preparing to formally respond to SEBI’s proposal on Total Expense Ratio (TER) caps, arguing the suggested structure may adversely affect the mutual fund industry.
- AMFI sources say the proposed TER differential between small and large funds—up to 1.2%—is “too steep.”
- SEBI proposes a 2.1% TER cap for funds with AUM up to ₹500 crore, but only 0.9% for funds exceeding ₹50,000 crore.
Threat to NFOs and Distribution Ecosystem
AMFI believes the dramatic TER reduction could deter new fund offers (NFOs) and strain the distribution ecosystem.
- Lower margins could make it harder for Asset Management Companies (AMCs) to incentivize distributors.
- With less room to operate, new fund launches may slow, reducing market competitiveness and innovation.
Proposal for Gradual TER Structure
AMFI is expected to recommend a more gradual TER reduction based on AUM rather than SEBI’s sharp step-down model.
- They suggest implementing TER regulation only for funds with AUM above ₹2,000 crore, instead of ₹500 crore.
- This adjustment, AMFI argues, would protect smaller funds and help maintain service quality as fund size scales.
Distributor Compensation a Key Concern
Another flashpoint is brokerage compensation. SEBI wants to reduce the permissible pass-through brokerage:
- From 12 basis points (bps) to 2 bps for cash market trades.
- From 5 bps to 1 bp for derivatives.
AMFI is pushing for higher brokerage levels, highlighting that distributors are essential to investor outreach and education.
Exclusions from TER Cap Welcomed, But Not Enough
SEBI’s proposal to exclude statutory levies—like GST, STT, and stamp duty—from the TER cap has been noted positively.
- However, AMFI maintains that the broader TER compression, particularly for large funds, remains unsustainable.
- Without flexibility, AMCs may face tough trade-offs between profitability and distribution scale.
Deadline for Comments Ends Today
The final date for public feedback on SEBI’s consultation paper is November 17, 2025.
- AMFI is expected to file its formal suggestions today, outlining its concerns and proposing adjustments.
AMFI is set to oppose SEBI’s sharp TER cap proposal, warning of adverse effects on new fund offers and mutual fund distributors. It calls for a more gradual TER structure, a higher threshold for regulation, and better distributor compensation to maintain industry viability.
