Capital market regulator SEBI plans to bring out a discussion paper on mutual funds expense ratio with the focus on ways to bring it down even as the inflows been growing leaps and bounds in last few months.

Addressing an industry event in Mumbai on Tuesday, G Mahalingam, whole-time director, SEBI said the liquidity in market has been hovering at Rs 3-4 lakh crore and this has been supporting valuations for quite sometime now.

SEBI has been working on measures to bring down the cost on mutual fund investors and a discussion paper will be put out seeking industry and stakeholders view, he said.

Cautioning the mutual fund industry on sustainability of inflows, he said the US Federal is expected to increase interest rates by 50-75 basis points next year and this will lead to rebalancing of allocation by foreign investors to emerging markets. The development may result fund outflow from India, he said.

In the domestic markets, he said excess fund flow after currency demonetisation is being slowly deployed as there are signs of revival in credit off-take. So it is advisable for the mutual fund industry, which is in sweet spot now, to work towards sustainable fund flow during bad times, he said.

The market regulator is also examining the Uday Kotak Committee report on Corporate Governance for relevant recommendations that can be implemented in mutual fund industry.

Leo Puri, Managing Director, UTI Mutual Fund said the call on expense ratio should be left to the market forces rather being debated at the regulatory level.

Expense ratio may not be an issue for an investor who is looking for a higher alpha provided the fund house can deliver it. While for a conservative investors, there are Exchange Traded Funds and fixed income schemes which carry low expense ratio, he said.

Nimesh Shah, Managing Director, ICICI Mutual Fund said investors have to tone down their expectations as they are not going to get the kind of alpha returns as they are from mutual funds.

In fact, he said the fund house is parking 65-70 per cent of the money flowing into dynamic balanced fund in debt and the rest in equity to ensure that investors are happy three years down the line, he said.

A Balasubramanian, CEO, Birla Sun Life Asset Management said there is an urgent need for the industry to set up a common distribution technology platform to buy and sell mutual fund schemes. This will not only reduce cost but also improve penetration.

The issue of high market valuation will get corrected automatically if SEBI implements its decision to increase the quantum of floating stocks, he said.

Milind Barve, Managing Director, HDFC Asset Management Company said mutual funds stock holding account for just six per cent of market capital despite the euphoric growth in mutual fund inflow.

Media should stop covering movements in Bitcoin prices to save gullible investors from getting trapped, he suggested.

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