The Securities and Exchange Board of India (SEBI) is now preparing to introduce performance charges for fund managers under mutual fund schemes. That is, fund managers will be able to charge investors based on the performance of the fund.
According to the information received by CNBC TV18, a decision can be taken soon. At present, some percentage is charged as fee on the basis of different types of schemes size and assets under management (AUM).
How to be charged
With many actively managed mutual funds failing to beat their benchmark indices, SEBI is preparing to propose a new category of mutual fund schemes with performance-linked fees. FYERS Head of Research Gopal Kavalireddy said that the proposal is similar to the charge structure of Portfolio Management Services (PMS), under which mutual funds will be able to charge advance fees. PMS is a professional financial service where the equity portfolio is managed by skilled portfolio managers and stock market professionals with the help of a research team.
what will be its impact
Kavalireddy believes that this regulation has been prepared keeping in mind the investors, which can prove to be effective in providing higher returns. He said that for some time SEBI has been making changes in the investment rules to benefit the investors. This new proposal seems correct in view of the present circumstances. Because some mutual fund schemes have performed poorly over a long period of time while some have given better returns as compared to top PMS schemes. Sourav Basu, head of wealth management at Tata Capital, said the initiative would encourage fund managers to generate better returns for investors.
However, in the meantime Basu also talked about its negative point. Told that fund managers may take undue risk to earn higher returns and earn higher fees, which may later affect investors. Vinayak Magotra, founding member, Product at Centricity, said investors may find it difficult to understand such a fee structure. This may increase confusion, due to which the participation of investors may decrease.
Basu said it is important to carefully consider the potential risks and benefits before deciding to invest in funds that charge such fees. He further said that it is also necessary to carefully evaluate the track record and investment strategy of the fund manager.
