Mutual fund investments to be more profitable as SEBI revises fee structure; returns to rise

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Updated: September 19, 2018 3:34:29 PM

Mutual fund investors are expected to benefit from the Sebi's revision as costs are likely to come down and returns set to rise.

mutual fund, sebi revisionsMutual fund investors are expected to benefit from the Sebi’s revision as costs are likely to come down and returns set to rise.

Capital markets regulator Sebi has recently made mutual funds investments more attractive by revising the total expense ratio (TER) slab structure for such funds, reducing 25 basis points in the top slab for both equity and debt funds. Mutual fund investors are expected to benefit from the Sebi’s revision as costs are likely to come down and returns set to rise.

The move will, however, adversely impact the asset management companies (AMCs) and the mutual fund industry as a whole as it is expected to slow down flows into mutual funds, say analysts.

“The changes are good for retail investors. We anticipated this change since the old slab has been in force for a long time now,” said Jeevan Kumar, Head of Investment Advisory, Geojit Financial Services. “Another notable fact is that, now since the expense has been slashed, the difference between direct and regular plans has shrunk further bringing them almost in level playing field in terms of cost incurred. Retail investors stand to benefit over the long term only when there is considerable cost difference ranging more than 50 bps while investing in direct plans,” Kumar told FE Online.

Rahul Sharma, Senior Research Analyst, Equity99 said the cap in total expense ratio (TER) will make mutual fund investments cheaper, thus protecting the interests of small investors. TER is the fee that mutual fund houses collect from investors every year to manage their money.

“SEBI on Tuesday surprised the market by reducing the charges that investors pay to mutual fund houses to manage their money, in some cases slashing it by almost 50%. The decision would benefit investors substantially since what they will pay would now directly add to their portfolio value,” Rahul Sharma told FE Online.

According to Harsha Upadhyaya, Chief Investment Officer (Equity), Kotak Mahindra Asset Management Co. Ltd, although the new TER will benefit investors, it may cause disruptions in the short term. “The new TER may cause short-term disruptions, but will enhance returns for investors. However, the change in TER may impact profit margins of AMCs,” he said.

Securities and Exchange Board of India (SEBI) on Tuesday revised the total expense ratio (TER) slab structure for mutual funds in a bid to reduce the cost of investing and bring transparency. The capital markets regulator revised the charges for the first time since its introduction in 1996.

In its revisions, Sebi cleared the proposal to cap the maximum TER for closed-ended equity schemes to 1.25% and other than equity schemes to 1%. The maximum TER for open-ended equity schemes will be 2.25%, said Sebi.

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