SEBI headquarters
The logo of SEBI at its Mumbai headquarters.Reuters

We all know the caveat associated with mutual funds, that such investments are subject to market risks.

But what happens when your investments get affected by the actions of your asset manager who charges unfair fees?

In such cases, the asset managers are supposed to credit the excess charges collected by them back into the mutual fund schemes, according to Securities and Exchange Board of India (SEBI).

A study by the financial markets regulator has revealed that fund managers have overcharged mutual fund investors as much as Rs 1,500 crore in the last five years.

The issue dates back to 2012, when mutual funds used to keep exit loads collected from investors for their sales and marketing expenses.

In mutual funds, an exit load is a cost imposed on investors when they redeem a scheme within a specified time period.

SEBI told fund houses in September 2012 that they should deposit exit loads back into the schemes. But to compensate for their losses, the market regulator allowed asset managers to charge an additional 20 basis points (bps) in expense ratios.

But some fund houses tried to make a few extra bucks by imposing higher changes by adding 20 bps expense ratio even in schemes that did not levy an exit load.

The SEBI internal study calculated the amount collected from this 20 bps charge to be around Rs 1,600-1,700 crore as of December 2017, of which only 10 percent was invested by the fund houses back into the schemes.

SEBI officials, who will meet Wednesday, are likely to consider this issue, the Mint newspaper reported citing two people with knowledge of the matter.