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MFAC suggests lower expense for direct investors

Lower cost will definitely benefit direct investors, but cost is not the only criteria one should look before investing in MF

August 02, 2012 4:41 IST | India Infoline News Service
The Mutual Fund Advisory Committee—appointed by SEBI (Securities and Exchange Board of India)—has recommended the regulator to introduce a separate share class structure for direct investors, according to media reports.

The committee has also recommended SEBI that AMCs (asset management companies) should charge a uniform fee for retail and institutional plans, the reports added.

Currently, a majority of the inflows in mutual funds business comes through distribution channels which include IFAs (independent financial advisors), banks and fund platforms. Around 8% investors come directly into equity funds, while for liquid funds, banks and corporate invest huge chunk of money directly.

Lower fees will obviously benefit direct investors who may get slightly higher returns due to lower costs. Pankaaj Maalde, head-ApnaPaisa.com, “Lower cost will definitely benefit direct investors, but cost is not the only criteria one should look before investing in MF. Most important thing is the selection of right assets class and finalising good fund for investment. An individual requires a valuable advice before investing which a direct investor may not have.” 

To implement this measure, AMCs might have to publish two different NAVs (net asset value)—one for direct and one for investments that have come through distributors. While lower charges would benefit direct investors, it may affect AMCs revenues.

Mr Maalde further said, “Investing in MFs is not like buying an online term plan and forget it. In MFs one has to review the performance of his schemes over a period of time, which requires quality advice. I firmly believe that without intermediary support it will be difficult for manufacturers to sell the product in the market. It will be also practically be difficult for AMCs to declare two NAVs for the same scheme. One side MFAC has advised increase in the fees by 25 basis points and other side they are also recommending reducing the cost. Both are contradictory and difficult to understand.” 

At present, over eight AMCs offer institutional plans under their equity schemes. However, the segregation of plans (retail & institutional) is mainly in fixed income schemes. MFs charge higher expenses to retail investors compared to institutional clients mostly because the cost of serving retail customers is higher.

MFAC should recommend something on underperforming schemes, because underperformance of schemes is the major thing which is affecting the growth of the industry, Mr Maalde pointed out. 


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