Existing expense ratios to continue; MFs say no to a flat expense ratio of 1.5% for equity schemes
Mumbai: Mutual fund distributors have a reason to cheer. The proposal to reduce expenses chargeable to mutual fund schemes has been shelved.
A reduction in expense ratios could have led to a cut in trail commissions that distributors earn on their assets under advisory invested in mutual fund schemes.
SEBI had in a meeting of its mutual fund advisory committee a few months ago proposed that the cap on expenses allowed for equity schemes could be lowered to a flat 1.50 per cent of assets under management (AUM). A suggestion was also made to lower the cap on expenses of debt and index funds to 1 per cent and 0.75 per cent of AUM, respectively.
AMCs were given an option either to continue with the existing slabs of expense ratios which range from 1.75 to 2.50 per cent, or have a flat fee. The industry resisted SEBI proposal to have a flat cap on expense ratios.
“As of now, there is no agenda as such (to have flat expense ratios),” H N Sinor, CEO, AMFI, told Cafemutual.
Sinor said the proposal was discussed in a SEBI mutual fund advisory committee meeting. “SEBI had offered an option to the industry to continue with the current expense ratio slabs or shift to a single cap on expenses. After detailed deliberations, the status quo was maintained.”
|
Existing Expense Ratios for Equity Schemes | |
|
AUM (in Rs crore) |
Expense Allowed |
|
100 |
2.50% |
|
Next 300 |
2.25% |
|
Next 300 |
2.00% |
|
Rest of the assets |
1.75% |
For debt schemes, the expense ratio cap is 2.25 per cent for the first Rs 100 crore of AUM, 2 per cent for the next Rs 300 crore of AUM, 1.75 per cent for subsequent Rs 300 crore and 1.5 per cent for the rest. The expense ratio allowed for index funds is flat 1.50 per cent.
If the expense ratio for equity schemes were to be capped at 1.5 per cent, fund houses would have had to pare all their expenses, including for the management and marketing of schemes. Trail commissions paid to distributors are also a part of the expense ratios.
Distributors receive between 0.50-0.75 per cent of assets under their advisory as trail commission from mutual funds.
Currently, 53 equity diversified schemes (open ended with growth option) charge 2.50 per cent annual recurring expense, 100 schemes charge between 2 to 2.49 per cent and 39 schemes charge 1.50 to 1.99 per cent.
The sales head of a private fund house suggested that investors who stay invested for more than 2 years should be charged lower expenses. “This will benefit the AMC, the investors and the distributors.
