AMCs have begun charging service tax on investment management fee from 1st October 2012.
Mutual Funds have begun communicating to their investors and distributors about the hike in expense ratios in schemes from 1st October.
Fund houses have raised the total expense ratio (TER) in equity funds to 2.70% and 2.45% in debt funds as an enabler clause to their scheme information documents. Earlier fund houses were charging a maximum of 2.50% as TER on equity funds.
However, it is unlikely that debt schemes would charge 2.45% as it could impact returns. The expense could be slightly higher than earlier. ETFs and index funds will charge a maximum of 1.50%. “Limits have gone up but nobody is charging as of now. AMCs have started charging service tax on investment management fee which is over and above the TER. AMCs don’t charge the full TER as debt schemes could become uncompetitive in the market,” said a marketing head of a bank sponsored AMC.
The maximum scheme expenses could even go more than 3% in equity funds after adding service tax on management fee, 20 basis extra TER (which has to be clawed back to schemes in the event of redemptions), and 30 basis additional expenses on gross new inflows from beyond top 15 cities. However, the expenses would depend on the extent of inflows from smaller towns.
“These are just enabling clauses. We will charge based on the market practice and it will change from time to time,” said a sales head of a mid-sized fund house.
