The Securities and Exchange Board of India (Sebi) is considering a proposal to allow mutual funds (MFs) to charge a fee based on their performance, a report by Business Standard stated, citing Ananta Barua, a whole-time member of the markets regulator.
According to him, the proposal is being reviewed by a working group formed to look into cost structures.
“One working group has been set up which is going to review... One of the suggestions is that if any scheme or fund is performing well above the benchmark, it (fee) can be linked to its performance. When the committee finds merit, we can take it through a consultation paper,” said Barua at the CII Mutual Fund Summit, as per the report.
Barua informed that the proposal for performance-linked schemes is part of a slew of ongoing consultations on rationalising costs and expenses for mutual fund investors, the report said.
Though he didn't disclose the contours of the proposed new fee structure, other analysts said that Sebi may create an optional new category just like direct plans. Under this, the base fee charged would be reduced and additional charges would be based on performance, experts told BS.
The report further stated that experts are of the opinion that this may even give scope for cutting the fee paid to mutual funds in case of constant underperformance versus the benchmark.
“Whatever benefits the industry is gaining because of the efficiencies built into the systems over time should be passed on to customers. From that perspective, we regularly try to rationalise costs. We will soon come out with a very elaborative consultation paper on the cost structure," said Manoj Kumar, executive Director, Sebi, at the event, the report said.
At present, mutual funds are only allowed to charge a fixed fee, while other pooled investment products, such as portfolio management services (PMS) and alternative investment funds (AIFs), have performance-linked fee structures. Under such structures, the asset manager is allowed to levy an additional charge if the fund consistently outperforms a relevant benchmark index and gives higher annualised returns, added the report.