Sebi, Amfi in talks on cutting KYC, depository charges with an eye on mutual fund profitability

Subscribe to enjoy similar stories. India's mutual fund industry body is in discussions with the markets regulator to reduce certain fixed or non-variable costs borne by mutual funds, as these charges do not decline with growth in assets and continue to weigh on profitability, said three people familiar with the matter. Costs such as know your customer (KYC) charges and depository fees are largely fixed in nature since they are levied on each onboarded investor.

In addition, there are fixed transaction platform charges. All of these remain the same regardless of the size of assets managed. This creates a structural mismatch at a time when mutual fund expense ratios fall as assets grow, squeezing margins for fund houses.

Expense ratio, charged as a percentage of assets under management or AUM, is the fee paid by investors to mutual funds, part of which goes towards operational and management costs and the rest towards distributor commissions. Markets regulator Securities and Exchange Board of India, or Sebi, has in recent months capped expense ratios, trimmed brokerage costs, and restructured the disclosure of fees charged by asset management companies (AMCs)—with the intent of reducing costs for investors. “Discussions between the Association of Mutual Funds of India (Amfi) and Sebi to reduce fixed costs for mutual funds are ongoing.

Many of these charges were set a long time ago and the effort is to try and see how costs can be reduced for fund houses as it will help improve their income," said a person with direct knowledge of the discussions. The industry has been engaging with service providers such as KYC Registration Agencies (KRAs) and depositories, as well. “We have been talking to all the providers also like