Mutual Fund Rules: The Securities and Exchange Board of India is preparing to introduce performance fees for fund managers. There are about 6.36 crore Systematic Investment Plan accounts in mutual funds.
There is going to be a big change in the Indian Mutual Fund Market (MF Market). The Securities and Exchange Board of India (SEBI) has proposed performance-based charging of fund managers i.e. fund managers will be able to charge investors based on the performance of the fund.
According to the information, a decision can be taken on this soon. At present, a certain percentage is charged as fee based on the size and assets under management (AUM) of different types of schemes.
SEBI is preparing to introduce a new category of mutual fund schemes with performance linked fees. This is because many actively managed mutual funds have failed to beat their benchmark indices. According to experts, Sebi’s proposal is similar to the fee structure for portfolio management services, under which mutual funds will be able to collect upfront fees. Portfolio Management Services 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.
Experts believe that this new rule is being prepared keeping in mind the investors, which can prove to be effective in giving higher returns. According to him, SEBI has been making changes in the investment rules for some time to benefit the investors. This new proposal seems to be correct considering the current circumstances as some mutual fund schemes have performed poorly in the long term while some have given better returns than top PMS schemes. This initiative of SEBI will encourage the fund managers to generate better returns for the investors.
Tts negative side
However, there are downsides to this proposed divergence as well. Experts said there is every possibility that fund managers may take undue risk to generate higher returns for investors and increase their fund’s fees. Its bad effect can affect investors. Along with this, he said that investors may find it difficult to understand such a fee structure. This may lead to confusion, which may reduce investor participation.
It is important to carefully consider the potential risks and benefits before deciding to invest in such a fee-charging fund. It will also become necessary for investors to carefully evaluate the track record and investment strategy of the fund manager.
