Bad news for Mutual Fund Investors.

POSTED BY Samad Sheikh ON July 6, 2012 11:51 am COMMENTS (8)

HI
Pls give ur comments for mutual funds and investors after going thru this link…

Pls see this link http://www.thehindu.com/todays-paper/tp … 596434.ece

The MF industry made out a case for hiking the expense ratio, including administrative fee and marketing cost by 25 basis points and also demanded that the sub-ceilings under the expense ratio be done away with. “Service tax should be borne by investors and should be kept out of the total expense ratio. We discussed how to increase retail participation. We have asked them to increase the total expense ratio to 2.25 per cent,” Association of Mutual Funds of India (AMFI) CEO H. N. Sinor told newspersons after the meeting. The mutual fund industry has requested the Finance Ministry to put the onus of service tax on the end-user or investor. It has also sought an increase in the expense ratio to 225 basis points.

3. If the proposals to increase fees by the industry are accepted by the Ministry, investors would stand to lose and MFs would become less attractive as the actual investment in schemes would tend to decline as asset management companies (AMCs) would pocket a larger portion as management fees.

8 replies on this article “Bad news for Mutual Fund Investors.”

  1. Btw , I think SEBI accepted the to increase the expense ratio from 2.25% to 2.5% ,, JUst got the news !

  2. somasekhar says:

    Hi Samad Sheikh,

    It’s an eye opener for the investors.

    AMC’s have come with 2 suggestions — Hike in expense ratio & Service Tax burden on Investors. But they knew SEBI will never allow them to burden service tax (14%) on investors. So whenever they want to hike expense ratio, they will come with these options. So expense ratio will touch 5%, 6% ….in future. That’s why we have to look for high returns funds. Those will be Small & Mid cap funds, but comes with risk. If you are an aggressive investor, no doubt you will get high returns in these funds.

    If we pay high commission to our Financial Planners, they will more concentrate on us. 0.25% not a burden for the investors (25/- per 10k). But Increasing the expense ratio from 2.25% to 2.5% of AUM per annum would result in mutual funds’ annual income increasing by as much as 11% ( http://www.financialexpress.com/news/sebi-may-up-expense-ratio-for-revival-of-mf-industry/969150/0 ) . This helps entire Mutual Funds industry.

    Thanks,
    Sekhar

  3. Samad Sheikh says:

    Hello Manish,Ashal,Banyan and Somshekhar
    Thanks for ur comments…
    The markets is not doing well for a long time and further these measures would demorlize investors..Instead of introducing some other alternative to boost M.F Industry…they have gone more backward by suggesting such expenses…it would result in more investors redeemping their funds and putting them in fixed deposits etc..such measures should be taken when Markets are performing well and investors are willing to share profits with the MF Industry

    I did not understand Somshekhar’s “Now we look for alternatives or search for the high risk, high returns mutual funds.”..
    What does it mean…which funds should we look for

    @Ashal…Pls share the funds which are charging less and giving good returns..(but once this proposal comes into place…then these funds would also not give that good returns..)

    Regards
    Samad

    1. Dear Samad, here are some of the proven performer.

      Quantum Long Term Eq.
      HDFC Top 200
      DSP Eq.
      Franklin India Bluechip
      DSP Top 100
      IPru Dynamic
      Fidelity Eq.
      Rel. Eq. Opp.

      All of the above funds do have expense ratio less than 2%. Even some have below 1.5%.

      Performance of these funds? Should I say any thing?

      Thanks

      Ashal

  4. I think all these are measures for making sure the mutual fund industry dont die , already after entry load of 2.25 percent was abolished , the agents force has declined like anything and you know how much of “push” market we are in personal finance, if agents do not earn good commissions , no one will push mutual funds and only handful of smart investors will invest in mutual funds on their own , rest 99% do not invest on their own and hence will not invest without an agent force .

    Anyways we were paying 2.25% entry load earliar and we were ok with it as it was “default” option. Now we are not ready to go for it . Now the default is 0% , so even if an agent asks 1% , we shiver 😉

    I do not say lets go back to 2.25% model , but atleast investors should be ready to compensate good agents and their advisors for suggestions and whatever they advice them , untill investors dont get into “I will pay for service” thinking , backdoor commissions will continue and required to make sure the industry is standing 🙂

    Manish

  5. Dear Samad, please do not get panic. It;s merely a demand & the same is not implemented. As rightly pointed out by dear BanyanFA, investors do not have much choice for Eq. exposure so we have to accept it if it happens at all. Well there are many funds who are performing brilliantly & charging very less.

    Thanks

    Ashal

  6. BanyanFA says:

    Expenses can never be good for investors. But if you look around, you would not have many options to take exposure of Equity, unless you are ready to venture into Equities directly.

    Else you would end up investing into Fixed Income which in long run have fixed returns only.

    Lets not panic – the expense ratio ceiling may be expanded, but it doesn’t mean that MFs will increase their expenses beyond the current 2.5%. Even in the current situation, there are so so many MFs who don’t even cross 2% ceiling.

    Regards
    BanyanFA

  7. somasekhar says:

    Hi,

    I think this is good for investor. Now we look for alternatives or search for the high risk, high returns mutual funds.

    Thanks,
    Sekhar

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