SEBI Chief U K Sinha has reiterated that AMCs should reduce costs in order to expand the reach of mutual funds.
“In asset management in India, the cost is quite high. We are one of the six countries where it is more than 2%. If we really want to expand the reach of mutual funds, then this has to be reduced,” he was quoted in Value Research magazine published in the anniversary issue of Mutual Fund Insights.
He said that the TER charged by AMCs is high as compared to international standards.
The Sumit Bose committee has also recommended that the TER charged by AMCs should come down. “Competition has not reduced costs much below the expense ratio that was fixed when the AUM of the industry was much lower,” states the Sumit Bose committee report.
“Managing cost is always a challenge. The mutual fund industry should come out with a solution to rationalize costs before intervention of the finance ministry,” SEBI Chairman U K Sinha is reported to have told members in the recent AMFI AGM.
The regulator has already started working in this direction. It has formed a committee headed by Nandan Nilekani, former Chairman of Unique Identification Authority of India (UIDAI) and co-founder of Infosys which has been tasked to suggest measures to reduce cost in mutual funds.
However, fund houses and distributors differ with SEBI chief’s push to reduce the TER.
“Costs have come down now. Earlier, AMCs were charging 6% contingent deferred sales charge. Now it is around 3%,” points out a Mumbai based distributor.
AMCs, especially the new entrants, feel that bringing down the TER will affect their growth. “Reducing TER will affect small players and ultimately the expansion of the industry. Larger AMCs won’t have a problem because of the size of assets they manage is big,” said the CEO of a bank sponsored fund house.
Some feel that a reduction in TER will impede the growth of the industry.
“AMCs are doing a specialized job for which they need to be properly incentivized. There are countries which have higher entry loads and expense ratios, whereas India has zero entry load. The penetration of MFs is low not because of expense ratio or entry load. To give an example, in US the government has allowed private institutions to manage pension money under 401k plans. In US, 67% of mutual fund investments come through 401k and IRA plans. Whether the markets are doing good or not, there is a constant pull towards mutual funds and new money continues to come in. In a market like US, you can have control on costs,” said Sudhakar Ramasubramanian, CEO – Wealth & Online Business (ABFSL) & MD, Aditya Birla Money had said in an earlier interview with Cafemutual.
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