The SEBI Mutual Fund Advisory committee is also believed to have suggested to SEBI that AMCs should charge a uniform expense for retail and institutional clients.
The SEBI Mutual Fund Advisory Committee is said to have suggested SEBI to introduce a separate share class structure for direct investors. The committee is also believed to have recommended SEBI that AMCs should charge a uniform fee for both retail and institutional plans.
Currently, a majority of the inflows in mutual funds business comes through distribution channels - IFAs, banks, NDs and fund platforms. In the equity category, 7%-8% investors come directly into equity funds. However, in the liquid funds category, industry experts say that direct investments from banks and corporates account for a substantial chunk of the inflows.
Charging less will obviously benefit direct investors who could hope for slightly higher returns due to lower costs. To implement this measure, AMCs might have to publish two different NAVs - one for direct and one for investments that have come through distributors. While lower charges would benefit direct investors, it would mean a hit on AMCs revenues.
“Lower fee for direct investors is good from a customer’s perspective and bad from the distributor’s perspective because today a majority of the business comes from the distribution channels. If we get a lot of direct investors, then we’ll have to scale up our infrastructure to service direct investors at a lower cost. Charging less to direct investors also affects our revenues but at the same time we could save the commissions,” says a sales head of a private sector fund house.
AMCs are divided over these two suggestions put forward by the SEBI MF Advisory Committee.
Officials say that savvy investors could take advice from distributors and come directly to AMCs in order to benefit from lower expenses. “SEBI wants a lower expense structure for direct investors. We are against it. It’s a not a good move for the industry because people will take advice and invest directly,” says a marketing head of a domestic fund house.
Experts feel that the impact if implemented would be felt on equity funds. “If AMCs are already charging lower than the current expense caps, a small reduction in fees to be charged to direct investors may not impact such investors. Nor would it reduce the actual revenues of the AMC. The impact would definitely be there in equity funds as most schemes would be charging expense at capped levels. If direct investors are charged less will there be two NAVs? There’ll be many operational issues if we have to charge differentially to different classes of investors. The cost of running an equity fund is same whether investments come directly or through a distributor except for the additional expense on distributor commissions,” says an industry observer.
Currently
8 AMCs offer institutional plans under their equity schemes. However, the segregation of plans (retail
& institutional) is mainly in fixed income schemes. MFs charge higher
expenses to retail investors as compared to institutional clients mainly
because the cost of serving retail customers is higher.
