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An analysis of distributable TER i.e. category wise difference between regular plan TER and direct plan TER shows that the multi cap funds have highest distributable TER. This means that multicap funds can pay highest commission to distributors compared to other scheme categories. Focused funds and midcap funds followed multi cap funds in terms of distributable TER.
On an average, multicap funds charge an expense ratio of 2.04% in regular plans and 0.67% in direct schemes. This leaves mutual funds with the room to payout 1.37% of the AUM as commission to distributors. Though mutual funds are not bound to pay the whole amount as commission, the payout is generally close to the difference in expense ratio of regular and direct plans. It also depends on volume of business generated by a distributor.
The analysis (based on December 2021 data) is part of KFin Technology's draft IPO prospectus.
In focused funds, the average expense ratio is 2.21% in regular schemes and 0.88% in direct plan, resulting in distributable TER of 1.33% in the hands of fund houses.
Other schemes where the distributable commission is in excess of 1% are midcap funds, smallcap funds, value funds, large & midcap funds, aggressive hybrid funds, largecap funds, ELSS and conservative hybrid funds.
The rest of the schemes which were analysed had less than 1% distributable commission. Passive funds, as expected, have the lowest room for commission at 0.35%. Banking and PSU funds occupied the second-lowest spot in the list with a commission potential of 0.40%.
Average regular and direct expense ratios (as of December 2021):
|
Regular |
Direct |
Distributable commission |
|
|
Multi-cap fund |
2.04 |
0.67 |
1.37 |
|
Focused fund |
2.21 |
0.88 |
1.33 |
|
Mid-cap fund |
2.1 |
0.81 |
1.29 |
|
Small-cap fund |
1.85 |
0.59 |
1.26 |
|
Value / contra fund |
1.85 |
0.59 |
1.26 |
|
Large- and mid-cap fund |
2.15 |
0.92 |
1.23 |
|
Aggressive hybrid fund |
2.19 |
0.97 |
1.22 |
|
Large cap fund |
2.26 |
1.12 |
1.14 |
|
ELSS |
2.03 |
0.96 |
1.07 |
|
Conservative hybrid fund |
1.84 |
0.78 |
1.06 |
|
Credit risk fund |
1.51 |
0.71 |
0.8 |
|
Dynamic bond fund |
1.25 |
0.58 |
0.67 |
|
Arbitrage fund |
1.01 |
0.36 |
0.65 |
|
Corporate bond fund |
0.7 |
0.28 |
0.42 |
|
Banking and PSU fund |
0.69 |
0.29 |
0.4 |
|
Index funds / ETFs |
0.43 |
0.08 |
0.35 |
