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Mutual fund returns to go up on Sebi move to prune expense

Author: Debasis Mohapatra/Monday, April 2, 2018/Categories: Mutual Funds

Mutual fund returns to go up on Sebi move to prune expense

Mumbai, April 2: Return on mutual fund investment is all set to be higher as the market regulator Sebi has decided to reduce the expense ratio charged by various asset management companies.

In its board meeting held last week, the Sebi has accepted the recommendations of Mutual Fund Advisory Committee and revised the expense ratio in its bid to reduce the cost of investing in the mutual fund schemes.

As per the revised norm, the additional expense charged by asset management companies will now be reduced to 5 basis points (0.05%) of assets under management (AUM) from 20 basis points charged earlier.

Industry experts are of the opinion that this would increase returns from mutual fund investments for investors.  

“This is a step in the right direction as returns for investors will rise in the long-term. But, the near term impact of this move is limited as expenses charged by mutual fund companies are already capped to a large extent,” Melvin Joseph, founder of Mumbai-based advisory firm, Finvin Financial Planners told The Finapolis.

While in regular plans, the expense ratio stands at 2.5%, it varies from 1 to 1.5% for direct plans, he added.

Mutual fund houses incur various charges for managing a fund like legal expenses, audit fees, marketing and distribution expenses among others. They also have to pay fees to transfer and registrar agents for issuing and redeeming units of the mutual fund along with fees paid to custodians for buying and selling securities in large volumes.

Notably, the market regulator had allowed charging 20 basis points of total AUM as exit load in 2012. The revised norm will now ensure higher returns for investors when they redeem their mutual fund holdings.

Talking on the impact of this move on distributors, Joseph of Finvin said that it wouldn’t impact commissions of distributors.

“This move is not likely to impact distributors as fund houses are not likely to tweak the commission structure. Rather, AMCs are likely to absorb it into their accounts,” Joseph said.

Notably, Sebi has already changed the commission structure for distributors from small cities in February this year. According to the revised norm, addition total expense ratio of 30 basis points will now be allowed to those inflows which come beyond top 30 cities. Earlier, it used to be beyond top 15 cities of the country.   

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