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 measure of the total costs associated with managing a mutual fund, will now comprise three components: base expense ratio, brokerage, and statutory levies. While the cut in the TER may seem modest, at just 15 basis points, it is likely to have a significant impact on the savings of investors.
To understand the implications of this move, it is essential to first understand what the TER is and how it affects investors. The TER is a percentage of the total assets under management (AUM) of a mutual fund, and it covers all the expenses associated with managing the fund, including management fees, administrative costs, and distribution fees. The TER is deducted from the net asset value (NAV) of the fund, which means that investors bear the cost of these expenses.
The reduction in the TER is likely to benefit lakhs of investors, as it will result in lower costs associated with investing in mutual funds. The 15 basis point cut may seem small, but it can add up to significant savings over the long term. For example, if an investor has invested Rs 1 lakh in a mutual fund with a TER of 2%, the annual expense would be Rs 2,000. With the reduction in the TER by 15 basis points, the annual expense would come down to Rs 1,850, resulting in a saving of Rs 150.
While the cut in the TER is a welcome move, it is essential to note that the bifurcation of the TER into its component units may not always result in a reduction in the overall fee. In some cases, the base expense ratio may be lower, but the brokerage and statutory levies may be higher, resulting in an overall fee that is similar to what it was before. However, this bifurcation is likely to bring more transparency to the fees associated with mutual funds, which will enable investors to make more informed decisions.
The reduction in the TER is also likely to increase the competition among mutual fund companies, as they will have to reduce their fees to remain competitive. This increased competition is likely to benefit investors, as they will have access to a wider range of mutual funds with lower fees. Additionally, the reduction in the TER may also lead to an increase in the net asset value (NAV) of mutual funds, as the lower fees will result in higher returns for investors.
The move by SEBI to reduce the TER is part of its efforts to make mutual funds more investor-friendly. In recent years, SEBI has taken several steps to increase transparency and reduce costs associated with investing in mutual funds. These include the introduction of direct plans, which allow investors to invest in mutual funds without paying distribution fees, and the implementation of a uniform fee structure for all mutual fund companies.
In conclusion, the reduction in the TER by SEBI is a welcome move that is likely to benefit lakhs of investors. While the cut may seem modest, it can result in significant savings over the long term. The bifurcation of the TER into its component units may not always result in a reduction in the overall fee, but it will bring more transparency to the fees associated with mutual funds. As the mutual fund industry continues to evolve, it is essential for investors to remain informed and take advantage of the opportunities that are available to them.
About the Author
