Investors may pay less for MF products, Amfi plans to cut costs

New Delhi: Investors from smaller towns may have to pay less for investing in mutual fund products as industry body Amfi is looking to reduce expense ratio by 30 basis points by October 2016.

Besides, it is planning to do away from the current practice of disclosing overall Assets Under Management (AUM) by fund houses and restrict it to only retail AUM.

These issues are expected to be discussed in the board meeting of Association of Mutual Funds in India (Amfi) on September 16 and a final decision will be taken thereafter.

"The AUM rankings published by fund houses on their websites are presently combined for all products, thereby giving a misleading picture.

"For retail products, the AUM rankings should be shown only for retail assets base," Amfi said in a letter to Asset Management Companies (AMCs).

The development comes following a report by the government-appointed committee to suggest measures for preventing mis-selling financial products including mutual funds.

The expert panel, led by former Finance Secretary Sumit Bose, was set up by the Finance Ministry in November last year to suggest measures to curb such instances.

In the letter, Amfi has asked asset management companies to voluntarily bring down the expense ratio in centres outside the top 15 cities, called B-15 cities.

The industry body has proposed to slash expense ratio by 10 basis points, effective October 1, followed by another 10 basis points reduction, effective April 1, 2016 and further 10 basis points, effective October 1, 2016.

The removal of extra commission in B-15 centres will help in creating a level-playing field and maximise returns for investors.

Currently, there are many fund houses which are pushing the products through upfront commissions and by paying a little extra money in B-15 to increase their sales and market share.

Expense ratio is the cost of running and managing a mutual fund scheme, which is charged to the investor. It includes fund management fees, marketing or selling expenses, transaction costs, investor communication costs, among others.

"It would give tremendous boost to our industry's image if we ourselves decide to voluntarily bring down expense ratio in B-15 centres and also change the system of disclosure of AUM effective October 1, 2015," the letter written last week noted.

Mutual funds' AUM from B15 locations grew to Rs 1.89 lakh crore at the end of March this year from Rs 1.39 lakh crore from the year-ago level.

Together, all 44 mutual fund houses manage assets worth more than Rs 13 lakh crore.