In a letter sent to SEBI, the Foundation of Independent Financial Advisor (FIFA) has urged the market regulator that SEBI should consider passing on GST on distribution cost in mutual funds to investors just as they pay GST on fund management fees.
Putting forth their findings before SEBI that India is among the least expensive countries in terms of mutual fund TER, FIFA said, “In fact, there is a strong case for allowing the GST on distribution cost to be charged to the investor as is the case for investment management fees.”
On rationalization of TER in mutual funds, FIFA has requested SEBI that the market regulator should first come out with consultation paper on rationalizing costs before coming out with its decision. FIFA said, “We are not aware of the basis on which the subcommittee of MFAC has come to the conclusion that the TER of equity mutual funds merits a reduction, but before any such measure is adopted, it would only be in the best interest of the industry and its development that broader consultation by way of issuance of a discussion paper is done.”
FIFA said that reduction of 15bps in lieu of exist loads, the net fees are only 1.70%. “This would have made the charges received by Indian MF industry the lowest in the globe for retail investors. The Indian MF industry has consistently over the last one-decade delivered alpha after over the benchmark thus delivering value to the investors. The profitability for entire industry is not high and is in fact is low,” added FIFA.
Further, FIFA said that reduction in TER could affect earnings of IFAs. The federation said, “Many small investors have just started investing in mutual funds over the last couple of years. If you reduce expense ratio, that would mean a reduction in earnings for IFAs. This in turn will harm small investors as the earnings out of their investments will make it unviable for IFAs to service and handhold them.”
