The Securities and Exchange Board of India (SEBI) has asked the companies in the mutual fund industry to lower the operating expenses imposed on investors. This comes amid concerns of whether India has the highest charges for mutual funds in the world.
Fund houses in India are currently charging a fee called total expense ratio (TER) for managing a mutual fund scheme. TER includes various charges such as marketing costs, audit fees, custodian fees, registrar fees, etc. This cost is added to a scheme as a percentage of its net asset value (NAV).
According to SEBI’s Chairman, Ajay Tyagi, there is scope to review the expense ratio of mutual funds and SEBI is now closely working on reviewing the TER structure. He also noted that TER was introduced when the mutual fund industry in India was still in the earlier stage. Considering the size of the industry at present, steps must be taken to bring down the charges imposed on investors.
When TER was introduced, the industry’s total assets under management (AUM) was only about Rs.50,000 crore. However, the current AUM of the mutual fund industry is around Rs.23 lakh crore. The industry needs to keep up with the pace of this development by reviewing the TER structure.
A report by Morningstar in October 2017 pegged the average equity expense ratio (2.22%) of India as among the highest in the world. However, a contrasting report by the Foundation of Independent Financial Advisors reported that India’s average expense ratio is only 1.88% and it is among the lowest in the world.
Considering this, SEBI has formed a six-member advisory committee to review the expense ratio of mutual funds in India. This committee is all set to meet in September to discuss the expense ratio structure. The regulator has also asked fund houses to disclose their TER on a daily basis. Based on the information obtained from this, SEBI will review the charges and make appropriate decisions.
Source: Bloomberg Quint