“Overall, it is going to help the industry in terms of expansion,” Subramaniam said, explaining that the 15-basis-point reduction in mutual fund costs will eventually benefit both investors and the industry. “The compounding effect of that 15 basis points as a cap should help overall industry returns as well as customers.”
However, he acknowledged that the impact will differ across industry participants. “The knee-jerk reaction in the market today I feel is a good time to buy because brokerage houses are providing research for which they are getting that fee,” he added, suggesting that high-quality brokers would not face significant fee erosion.
Subramaniam noted that while SEBI’s cap allows customers to be charged only two basis points, most asset management companies (AMCs) already pay an average of five to seven basis points to brokers. “If an AMC is paying six, the six minus two will come out of the expense ratio which is already there. Whether the AMC absorbs it or reduces distributor commission will vary from one AMC to another,” he said.
He believes the perceived hit on AMCs is overstated. “The reduction of the 15 basis points on AMCs itself I do not think is going to be that strong because they will pass this on to distributors as a reduction in brokerage cost. If there is a negative reaction today to AMC stocks, I think even that is a good opportunity to buy.”
Addressing the impact on distributors, Subramaniam pointed out that larger schemes will likely see trail commissions trimmed, but SEBI’s move to allow GST on trail commissions to be paid outside the scheme offers some relief. “Distributors can set off this as input tax credit against expenses they have. So, while they may lose on the trail commission, on a post-GST basis their income will also get protected,” he explained.Summing up the broader implications, he said, “Today’s nervousness is short-term. This decision will expand the industry and is in the long-term interest of customers.”When asked about the adverse impact, Subramaniam broke it down between stock market participants and non-listed players. “The regulations impact broking houses, AMCs, and listed distribution partners. Between them, there won’t be much impact,” he clarified.
He explained that for brokers, “the average is already five to six basis points, of which two will now come from outside of the scheme and the balance from within. There’s a little hit to the AMC, but not material.”
Subramaniam added that smaller mutual fund distributors (MFDs) at the lower end of the pyramid could feel a tighter squeeze due to weaker bargaining power. “The listed bigger distribution houses will be able to negotiate better commission structures, so I do not see them getting affected significantly,” he said.
Concluding his analysis, he remarked, “There is no big negative reaction warranted for listed players. Smaller marginal players might feel the pinch, but overall, the industry will adapt and grow stronger.”