The move by the Securities and Exchange Board of India (Sebi) to cap the expenses of mutual funds is taking a new turn.

Faced with a demand of the mutual fund industry to remove the sub-caps within the overall cap on expenses, Sebi has said the removal of sub-caps can be done only if the overall cap is lowered to 1.5 per cent from 2.25 per cent at present.

Earlier Sebi had capped the total expenses at 2.25 per cent with sub-limits on expenses under different category for items such as fund management charges and advertising.

According to a member in Sebi’s mutual fund advisory committee, this issue will be on the main agenda of the meeting of Sebi’s mutual fund advisory committee on Monday.

Mutual fund houses want the sub-limits within the 2.25 per cent cap to go and seek to have the freedom to decide how much they spend under different category of expenses.

However, the regulator said it would remove the sub-limits only if fund houses agree on an overall cap of 1.5 per cent instead of 2.25 per cent.

The other major agenda of the meeting will be mutual funds’ exposure to derivatives and the way they are reported.

At present, fund houses show only the margin amount they have paid as investments under derivatives. The Sebi committee may recommend reporting of full investment in derivatives instead of just the margin amount. Sebi has already expressed concern over mutual funds’ exposure to derivative instruments, such as options.

Derivatives are financial products, which are contracts or agreements on the future value of an underlying asset such as stocks or currency.

The MF advisory committee includes heads of four mutual fund houses — HDFC, Fidelity, Reliance and Tata Mutual Fund — apart from Association of Mutual Funds in India (Amfi) chairman AP Kurian and UTI Mutual Fund chief marketing officer Jaideep Bhattacharya.

Former chairman of UTI and Sebi, SA Dave, is the head of the committee. Sebi executive director KN Vaidyanathan is also a part of the committee.