The Securities and Exchange Board of India (SEBI) has taken disciplinary action against an investment adviser for serious regulatory violations, highlighting the regulator's continued focus on compliance enforcement in the advisory space.

SEBI's Enforcement Action

SEBI issued a 16-page order reprimanding Winway Research proprietor Ankur Jain for multiple breaches of Investment Advisers regulations. The regulator directed Jain to exercise greater diligence and care in his dealings as an Investment Adviser following the investigation.

Key Violations Identified

The regulatory examination revealed several serious compliance failures:

Investigation Timeline

The enforcement action stems from complaints filed against Jain on the SCORES portal. SEBI conducted a thorough examination following an enquiry report submitted to the regulator on November 18, 2024. The investigation focused on verifying whether applicable regulatory compliances were being followed by the accused adviser.

Defence Arguments Rejected

Jain mounted a comprehensive defense against the allegations, presenting several arguments to SEBI:

Fund Routing Defense: Jain claimed his firm maintains a clear policy against accepting client fees in third-party bank accounts, as stated in agreements, invoices, and website disclosures. He attributed the violations to unauthorized activities by former employees who allegedly misused company credentials without the firm's knowledge.

Fee Structure Clarification: Regarding overlapping fee charges, Jain argued that the allegations resulted from misunderstanding the pre-2020 invoicing system. He explained that combined bills were raised for multiple services, and clients subscribing to service combinations were not actually charged for overlapping periods.

Technical Failures: On call record maintenance issues, Jain contended that the firm made reasonable efforts to maintain and provide recordings as required, but certain data became unavailable due to technical failures beyond his control.

Regulatory Stance

Despite Jain's detailed explanations, SEBI rejected all defense arguments presented. The regulator maintained its position on the violations and proceeded with the disciplinary action. This decision reinforces SEBI's strict approach to investment adviser compliance and its expectation that principals remain accountable for their firms' operations.

The case underscores the importance of robust compliance systems and proper oversight of employee activities in the investment advisory business, as regulatory accountability ultimately rests with the registered adviser.

The Securities and Exchange Board of India (Sebi) and the Association of Mutual Funds of India (Amfi) are currently engaged in discussions to reduce fixed operational costs for mutual funds, including KYC charges and depository fees. These talks aim to address structural cost pressures facing fund houses as regulatory changes continue to impact industry profitability.

Fixed Cost Structure Creates Operational Challenges

Mutual fund companies face a fundamental mismatch between their cost structure and revenue model. Fixed costs such as KYC charges and depository fees remain constant regardless of the size of assets managed, while expense ratios—the primary revenue source—decrease as assets under management grow. This telescopic nature of expense ratios creates particular pressure for smaller schemes and newer fund houses.

The expense ratio, charged as a percentage of assets under management, represents the fee paid by investors to mutual funds. This fee covers operational and management costs as well as distributor commissions. However, several components within this structure do not scale with asset size.

Recent Regulatory Changes Impact Industry Economics

Sebi has implemented significant changes to the mutual fund cost structure in recent months. The regulator capped brokerage costs and restructured the total expense ratio framework, with new rules taking effect from April 1, 2026.

Under the revised framework, the base expense ratio will exclude statutory levies such as securities transaction tax, commodities transaction tax, and goods and services tax. The total expense ratio will be disclosed as a combination of base expense ratio, brokerage, regulatory levies, and statutory charges to improve transparency.

Fixed Costs Burden Small Investments Disproportionately

The impact of fixed costs becomes most apparent in small-ticket investments. Asset management companies pay approximately ₹35.00 to KYC Registration Agencies for each new investor onboarded, regardless of the investment amount. Additionally, AMCs pay about ₹11.00 per ISIN per investor annually to depositories as custody charges.

For a ₹500.00 monthly systematic investment plan, an AMC earns roughly 0.30% annually on that investment, excluding distributor payouts and operating expenses—approximately ₹18.00 per year. At this rate, it takes nearly two years for the AMC to recover just the fixed KYC costs.

Industry Seeks Telescopic Cost Structure

The mutual fund industry has been engaging with service providers including KYC Registration Agencies and depositories to address this structural imbalance. Industry representatives argue that if expense ratios are telescopic in nature, the entire cost chain should follow a similar structure.

The revised expense ratio rules are expected to benefit smaller schemes more than larger ones, as funds with lower assets under management typically charge higher expense ratios to offset the lack of scale. However, experts note that reductions in fixed costs may not necessarily be passed on to investors, similar to how tax cuts in other industries are sometimes absorbed by companies rather than benefiting end consumers.