MUMBAI: While experts have maintained that mutual fund investors, especially long-term investors, could benefit from the latest fee reduction announced by Securities Exchange Board of India (SEBI) on Tuesday, investors in shares of Asset Management Companies (AMC) had little to rejoice, as the news brought their prices crashing down.
While shares of HDFC Asset Management Company Ltd fell 8.55 per cent to close at Rs 1,408.55, Reliance Nippon Asset Management crashed 11.28 per cent to close at Rs 190.
“AMC corpus has grown much in the years, and the fees have come down.
Even at the current level, it can be deemed expensive,” said an investment advisor. AMC corpus had grown to Rs 25 lakh crore by August-end, bringing in bulk as well as regular inflows through systematic investment plans.
There has been two different assessments of Indian fee structure. Morningstar, in its report last year, termed India’s average TER (total expense ratio) of 2.22 per cent as one of the largest, while the Foundation of Independent Financial Advisors said it is one of the lowest at 1.88 per cent.
“Cut in TER will directly lead to cut in agency commission for us. This could affect inflows as some of the smaller agents may start selling other attractive products,” said a mutual fund distributor. Expense ratios are fees AMCs charge on the mutual fund assets managed by them. SEBI has also barred any upfront commission to agents, a practice most AMCs had done away with.
Analysts expect brokerages to pass on the cut in TER to distributors. Yet, they expect the earnings per share of AMCs to fall by around 15 per cent.
“Large marketing spends by AMCs would take a toll and further to this, the growth of large AMCs could suffer due to these changes,” said Amit Singh, CEO of Investica, an online investment platform.
This could also bring down the gap between the regular and direct schemes, he said.