A study commissioned by Foundation of Independent Financial Advisor (FIFA) finds to be one of least expensive countries in the world going by fund expense ratios.
In fact, post rationalization of total expense ratio (TER) by SEBI, India is probably the least expensive country in the world, says the study.
Earlier in June 2018, SEBI has incorporated changes to the additional expenses that fund houses charge for B30 expansion and exit loads. While the regulator has revised the definition of top cities and beyond top cities for additional TER, it has reduced expenses charged in lieu of exit to 0.05%. Both these changes have led to a reduction in overall TER.
Overall, India is the third least expensive country in term of equity funds TER in the world based on March 2017 AUM. Norway and Japan follow India. The report says, “The difference in expense ratio between Norway, which is the least expensive country at 1.80% and India which is 1.88% is only 0.08%. Compared to Japan, which is the second least expensive country, India is at the same cost. The average total cost for equity funds before taxes across all countries is 2.15%. The costs range from a low of 1.80% (Norway) to a high of 2.83% (U.K.) with a spread of 1.03.”
In terms of fixed income funds, India stands at tenth position and sixth if, we compare countries with similar TER structure.
FIFA has conducted this study across 25 countries including 17 countries having bundled structure and 8 countries with unbundled structures. While cost of distribution and exchange charges are included in bundled structure, unbundled structure does not include such charges. However, the investors pay platform charges (if applicable) and investment advisory fees in addition to the TER in unbundled structure.
The study says, “Perceptions created on a plain reading of incomparable data led to the myth that costs in unbundled structures are lower than costs in bundled structures. However, the facts clearly contradict this perception. The average total cost for equity funds before taxes in case of countries (8 countries) following unbundled structures is 2.40% (refer Table 7 on page 31). The average total cost for equity funds before taxes in case of countries (17 countries) following bundled structures is 2.04%. Costs of owning equity funds before taxes in countries with unbundled structures is higher by 0.36% on an average compared with costs in countries with bundled structures. This clearly breaks the myth that unbundled structures are cheaper than bundled structures.”
The study is in stark contrast to the findings of Morningstar’s Global Fund Investor Experience Study 2017, which claims India to be among the most expensive countries in term of mutual fund TER.
The study further says that of 25 countries, India and Canada are the only two countries that do not have any front load charges. Also, India is the only country where exit loads are credited back to the scheme thereby benefitting the continuing investors.