 "Indian MFs among cheapest globally: Fifa")
With talk of markets regulator Securities and Exchange Board of India (Sebi) wanting to reduce the permitted expense ratios for mutual fund schemes, the Foundation of Independent Financial Advisors (Fifa) says Indian funds are among the least expensive globally.
The body has contradicted a report on expense ratios brought out by MF tracker Morningstar last year. Morningstar had computed the total expense ratio, or TER, for equity funds to be 2.65 per cent for India. Fifa says its study shows the TER for equity-oriented funds is 2.07 per cent, or 1.81 per cent after reduction of service tax charges of 14.5 per cent. This makes India the fifth least expensive of the 25 countries reviewed by Morningstar last year.
“The long-term returns post expenses earned by investors in Indian equity funds are far superior to returns earned in funds in other countries. An analysis of the TER as a percentage to the returns earned would be the best in India,” said the Fifa report.
TER is the annual charge deducted from the net asset value of the scheme towards administrative, management and all other expenses. Typically, the larger the scheme, the lesser is the TER charged.
For their study, Fifa has taken the average assets under management for March, scheme-wise, from the website of the Association of Mutual Funds in India (Amfi) and worked out the weighted average expense ratios for all schemes in the category of equity-oriented funds.
“Conclusions that TER in India is indeed high are drawn without giving due consideration to all ingredients of the cost of ownership to the investor,” said their report. Fifa has computed the total cost of ownership by taking into consideration front load charges, annual expenses, advisory fees, platform access charges and performance fees.
Sebi is likely to lower the ceiling for TER charged by MFs. Sources said Sebi wants to effect a slabwise reduction in total expenses charged. At present, equity schemes can charge 2.5 per cent for the first Rs 100 crore of assets managed, 2.25 per cent for the next Rs 300 crore, two per cent for the subsequent Rs 300 crore and 1.75 per cent for the balance. An extra 30 basis points can be charged on these respective slabs for inflows outside the top 15 locations. However, Sebi is also considering lopping off this 30 bps incentive for garnering assets from smaller cities.
The proposal to reduce the expense ratio is in line with last year’s Sumit Bose committee report.
