A latest study commissioned by Foundation of Independent Financial Advisor (FIFA) claims that cost of distribution of mutual fund in India is cheaper than global markets.
In fact, the study claims that mutual fund distributors earn 0.80% of commission excluding GST, which is 0.45% lower compared to 1.25% charged globally against advisory and execution fees.
The study says, “The weighted average cost of distribution for all mutual funds in India under regular option is 0.80% + GST 0.14% = 0.94%. Thus, the overall effective brokerage received by distributors as a percentage of assets mobilized, advised and serviced by them net of GST works out to 0.80% only compared to a cost of 1.25% which is charged globally as a fee for investment advice in lieu of brokerage when investing in products with unbundled structures.”
The study cautioned that a compulsory shift to a fee based advisory model could increase the cost of ownership of mutual funds for investors. “A compulsory shift to a fee based advisory model will entail an advisory fee cost of 1.25% (the internationally prevalent norm) thereby increasing the total cost of ownership by 0.45%. On an AAUM of Rs 10.41 lakh crores it implies an addition burden of approximately Rs. 4684 crore on the investing community,” claims the study.
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.
