Among broking firms, IIFL Capital dropped 9.4%, Motilal Oswal Financial Services slumped 8% and Nuvama declined 0.6%. Nippon Life India Asset Management tumbled 5%, while HDFC Asset Management dropped 4.3%, Aditya Birla Sun Life AMC fell over 3% and Canara Robeco AMC dipped 4.6%. The Nifty Capital Markets Index fell 1.9%.
Brokerage Jefferies said Sebi’s plan to discontinue the additional 5 basis points (bps) that fund houses are allowed to charge unitholders across schemes could have a large impact on AMCs. The move could have a 30-33% impact on earnings for both HDFC AMC and Nippon AMC if implemented in FY27, it said.
Sebi’s other key proposal was to cap the brokerage that mutual funds pay broking firms for cash market trades at 2 basis points, as against the current 12 bps and 1 basis points for derivatives from the existing 5 bps.
Mutual fund officials said if the norms come into effect, brokerages and mutual fund distributors are expected to bear the brunt.
“Revenues for some AMCs may fall for a short period since this will be a period of adjustment, but they are likely to reduce payouts to distributors gradually,” said Sandeep Bagla, CEO, Trust Mutual Fund.
Agencies“The smaller AMCs could be at a disadvantage as they could face less access to research from brokers.” Mutual funds charge unitholders a fee, known as the expense ratio, every year that is calculated as apercentage of assets, for managing their money. The charge — a critical revenue source — is used to pay for management fees, distributor expenses, brokerage charges, and operational costs. A higher expense ratio means investors are incurring higher costs. At the same time, a reduction in this fee hurts fund houses, distributors and brokers.
“Institutional brokers could see a hit of anywhere between 5-20% of their brokerage revenue, depending on whether AMCs/institutional clients continue to value the additional services provided, and how concentrated such brokers were in terms of generating their revenues purely from the institutional side,” said Somnath Mukherjee, VP, Corporate Development, Zerodha. Smaller/mid sized brokers dependent on the institutional side are likely to see a higher impact, he said.
Fund houses often have lean research teams and rely on brokerage houses that provide them with equity research and management meetings. With brokerage capped at 2 basis points, small brokerage houses could be hit as fund houses are expected to turn selective.
Mutual funds could also slash distributor commissions to protect their margins. “If the expense ratio is rationalised, it could impact Asset Management Companies’ (AMCs) margins by 10–15%, and the second-order impact will be on mutual fund distributors as well,” says Kunal Valia, founder and compliance officer, Statlane, a Sebi-registered research analyst.
Sebi’s proposed changes to the mutual fund fee structures will bring down the base expense ratio of open-ended equity mutual fund schemes by 15 basis points and close-end equity mutual fund schemes by 25 basis points, the regulator’s consultation paper said. Sebi has also proposed excluding government levies such as STT, GST, CTT, and stamp duty from expense ratio limits, a move that will result in any future changes being passed on to investors.