Investing in Mutual Funds Cheaper, SEBI Caps Expense Ratio | September 19



? Cool Title, but what’s the news?

The Securities and Exchange Board of India (SEBI) on Tuesday announced major changes to the fee structure for the Rs 25-trillion mutual fund (MF) industry. This decision will hit the profits of asset management companies (AMCs) but result in savings for investors.

? Okay, but what does it mean?

SEBI has capped the total expense ratio (TER) for mutual fund houses with equity assets up to Rs. 500 billion at 1.05%. This is down from as much as 1.75% which was charged earlier by AMCs. However, AMCs with lower AUM (Assets under management) will still be allowed to charge a higher TER, but this will be based on slabs. SEBI also said the industry would have to move to a full “trail model” for commissions. It also capped fees for exchange-traded funds (ETFs) at a maximum of 1 per cent.

? Why should I care?

Because Mutual Funds just had another thing added to their pros list when it comes to investment opportunities. A fixed upper TER is most beneficial for the investor since it means more returns coming their way from their investments. While the reduction in the TER could shave off profitability of large fund houses by up to 12 per cent, it’ll ultimately be of the utmost benefit to the investors. Source: Business Standard
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Written by

Vedant Kaushik