A SEBI panel today recommended that the expense ratio that mutual funds deduct annually from investors' net asset value (NAV) be retained at 2.25 per cent, the level that it has been currently capped at.
The SEBI Mutual Fund Advisory Committee, comprising SEBI and mutual fund industry representatives, in a meeting in Mumbai, also decided to enhance transparency of disclosure norms for investment in equity options.
Equity options are derivative products in which investors bet on the future value of stocks or their indices. SEBI is not in favour of mutual funds supporting hedging business in view of the higher risk of losses.
SEBI is reported to be of the view that the MFs should either lower their expense ratio at 1.5 per cent and / or cap their management expenses at 1.25 per cent while charging the balance expenses at the rate of 1 per cent on actual basis.
Also, fund houses are now under SEBI's scanner for allegedly doling out lavish incentives like cash payouts and foreign junkets to their agents and distributors in return for higher sales.
Instances of distributors of various fund houses receiving generous cash incentives and trips to exotic locations in India and abroad have been reported especially since the practice of charging an entry-load from investors was discontinued last year.