Shares of Asset Management Companies like HDFC Asset Management Company Ltd. (up 5.65%), Canara Robeco Asset Management Company Ltd. (up 9.66%), Nippon Life India Asset Management Ltd. (up 7.12%), Aditya Birla Sun Life AMC Ltd. (up 5.91%), UTI Asset Management Company Ltd. (up 4.99%) and others surged on Thursday’s early trades in an otherwise weak market.

Why are shares of AMCs rising today?

The Securities and Exchange Board of India on Wednesday introduced a simplified cost framework for the mutual fund industry, improving transparency for investors while balancing the impact on asset management companies.

The regulator announced that the expense ratio limit will now be called the Base Expense Ratio (BER), which will exclude statutory levies like Securities Transaction Tax (STT), GST, Stamp Duty and so on. BER will now only include fund level costs like management fees, distribution brokerage and RTA charges. Taxes will be disclosed separately.

Expense ratios under the revised framework

The maximum expense ratio for open-ended equity-oriented mutual funds will be in the range of 0.95% to 2.10% (excluding statutory levies) compared to 1.05% to 2.25% earlier (including statutory levies).

For other than equity oriented schemes which are open-ended, the expense ratio will be in the range of  0.70% and 1.85% (excluding statutory levies), compared to 0.80% and 2.00% (including statutory levies) earlier.

For index funds, the expense ratio has reduced from 1.00% (including statutory levies) to 0.90% (excluding statutory levies).

Impact on AMCs

Experts believe that the new regulations are largely neutral for AMC earnings, and are a relief as compared to the norms that were proposed in October. They don’t see a material change in the core earnings of AMCs, as per media reports.