SEBI lowers fee cap for mutual funds, likely to benefit lakhs of investors
In a move that is expected to benefit lakhs of investors, the Securities and Exchange Board of India (SEBI) has announced a reduction in the total expense ratio (TER) charged by mutual fund companies. The TER, which is a percentage of the fund’s assets, is used to cover the operating expenses of the mutual fund. The reduction, although small at just 15 basis points, is expected to result in significant savings for investors over the long term.
The new regulation will see the TER comprise three components: the base expense ratio, brokerage, and statutory levies. This bifurcation of the TER into its component units is expected to bring more transparency to the fees charged by mutual fund companies. While the cut in the TER may not result in a significant reduction in fees for all investors, it is expected to benefit those who invest in mutual funds with high expense ratios.
For investors, the reduction in the TER means that a smaller percentage of their investment will be deducted as fees. This can result in higher returns over the long term, as more of their investment will be invested in the market. For example, if an investor invests Rs 1 lakh in a mutual fund with a TER of 2%, they will be charged Rs 2,000 in fees. If the TER is reduced to 1.85%, the investor will be charged Rs 1,850 in fees, resulting in a saving of Rs 150.
The reduction in the TER is also expected to increase competition among mutual fund companies. With the fees charged by mutual fund companies now more transparent, investors will be able to compare the fees charged by different companies and choose the one that offers the best value for money. This increased competition is expected to result in lower fees for investors over the long term.
It’s worth noting that the bifurcation of the TER into its component units may not result in a reduction in fees for all investors. In some cases, the overall fee may remain unchanged, as the reduction in the base expense ratio is offset by an increase in brokerage and statutory levies. However, the increased transparency will still benefit investors, as they will be able to see exactly what they are being charged for.
The reduction in the TER is also expected to benefit investors who invest in mutual funds through systematic investment plans (SIPs). SIPs involve investing a fixed amount of money in a mutual fund at regular intervals, and the reduction in the TER will result in lower fees being deducted from each installment. Over the long term, this can result in significant savings for investors.
In addition to the reduction in the TER, SEBI has also announced other measures to increase transparency in the mutual fund industry. These include the introduction of a new format for the presentation of mutual fund data, which will make it easier for investors to compare the performance of different mutual funds. SEBI has also announced plans to introduce a new system for the disclosure of mutual fund expenses, which will make it easier for investors to see exactly what they are being charged for.
Overall, the reduction in the TER is expected to benefit lakhs of investors who invest in mutual funds. While the cut may be small, it is expected to result in significant savings over the long term. The increased transparency and competition in the mutual fund industry are also expected to benefit investors, as they will be able to compare the fees charged by different companies and choose the one that offers the best value for money.
In conclusion, the reduction in the TER is a positive move for investors, and it is expected to result in significant savings over the long term. The increased transparency and competition in the mutual fund industry are also expected to benefit investors, and it will be interesting to see how the industry evolves in the coming months and years.
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