Regulation can cut fees, not complacency

SEBI has released a consultation paper proposing a comprehensive overhaul of mutual fund regulations. Among the many changes being discussed, there's a significant reworking of how fund expenses work. This is good news, though perhaps not for the reasons you might think. The proposals include some meaningful adjustments. The regulator wants to remove a peculiar five-basis-point charge that funds could levy on schemes with exit loads. This was a transitional provision from 2012 that's lingered far longer than it should have. More significantly, SEBI proposes to exclude all government levies from the expense limits. Currently, only GST on management fees falls outside these limits, while STT, CTT and stamp duty are included. The new framework would put all statutory charges outside the expense cap. The logic is sound: if the government changes these taxes tomorrow, the impact should flow directly to investors rather than being absorbed within existing expense limits.