SEBI Set to Review Its Plan to Slash Brokerage Costs for AMCs

As per a report from Financial Express, Securities and Exchange Board of India (SEBI) is considering a review of its earlier proposal to cut brokerage fees paid by asset management companies (AMCs) for mutual fund transactions. This move comes after concerns raised by institutional participants regarding the practical implications of such a fee reduction. 

AMC Brokerage Fee Cap Under Reconsideration 

In October, SEBI suggested reducing the upper limit on brokerage fees that AMCs can pay for mutual fund transactions in the cash market from 12 basis points to 2 basis points. The proposed revision aimed to enhance transparency and ease cost burdens on retail investors. However, in a recent closed-door meeting during the CII Financing Summit, key stakeholders expressed concerns about the feasibility of this reduction. 

Concerns from Industry Participants 

Several industry representatives pointed out that such a significant fee cut could adversely affect smaller brokerages and the research function they provide. Many believed that if the cap remains unchanged, AMCs might pass on the fee burden to brokers, potentially impacting service quality and operational sustainability. 

Brokerage Fees and Research Services 

The current debate also centres around whether brokerage and research services should be offered as a bundled package or be distinctly charged. Some brokerages that provide in-depth research argue that 2 basis points would be insufficient to cover costs, especially for those investing heavily in analytics and support infrastructure. 

Read More: SEBI Panel Recommends Public Disclosure of Assets by Senior Officials! 

AMC Business Models Affected 

The proposed circular, if enforced without amendments, could significantly impact AMCs’ cost structures. There are apprehensions that such financial strains might be shifted across the value chain, ultimately influencing investor experience and access to research-driven investment advice. 

Path Forward for Policy Adjustment 

Following the feedback, SEBI Chairman Tuhin Kanta Pandey has indicated a willingness to review the proposal closely. The regulatory body is expected to engage with market participants to understand operational realities and arrive at a balanced outcome that retains investor benefits while safeguarding institutional viability. 

Conclusion 

SEBI's proposal to reduce brokerage fees paid by AMCs is aimed at enhancing investor transparency and cost efficiency. However, following industry feedback, the regulator has agreed to re-evaluate the plan, weighing its impact on broker operations and research services within the mutual fund ecosystem. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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