If you have been reading up on mutual funds, especially in foreign websites, you would not have missed the emphasis placed on expense ratio. What is an expense ratio and should it matter to you?
Expense ratio is nothing but the recurring cost per unit- incurred to operate a scheme – that is charged to your assets.
By operate, we mean the fund management fee, expenses incurred on selling and marketing, fees paid to the registrar and transfer agent and other expenses directly related to running the scheme. Such expense ratio is calculated periodically but is charged daily on the NAV.
Expense cap
Can a fund charge your assets with the entire expense incurred? That may allow funds to indiscriminately incur expenses. To prevent this, SEBI has a cap on the maximum amount that a fund can charge on the weekly average assets of the scheme. For instance, it is a maximum of 2.5 per cent (will additional allowance 0.3 per cent given for selling in Tier II and Tier III cities) for active equity funds. It is lower for debt funds and index funds.
This charge is made on the total assets of the scheme. Your NAV per unit is arrived at, after such a charge. Simply put, the return that you calculate on your NAV is after deduction of expense ratio.
Earlier, SEBI had a cap on the individual components of the expenses such as fund management fee and distribution cost. But a few months ago, it removed such internal caps. As long as funds adhere to the overall limit, they can incur these costs in any proportion.
SEBI also provided a recent option for investors to buy funds directly from AMCs (not through the distributor). If bought directly, the NAV – called the direct plan NAV – will not bear the fee paid to distributor. That means the direct plan NAV will be higher than the regular NAV to that extent.
Should expense ratio matter?
Now, should expense ratio matter to you? If you asked a US-based investor, this question will seem preposterous. This is because, in developed markets, where returns are often in single digits, the expense ratio can cause a dent in the amount you can take home.
But in markets such as India, where equity funds have comfortably managed double digit returns, expense ratio has not really mattered much, especially in equity funds.
What you see as returns in your fund is after such expense ratio. For instance, the average return of equity funds over the last 10 years was 23 per cent annually. This return, which is post expenses, is high enough.
In such a scenario, your aim should be select a reasonably good performer and not worry too much about the expense ratio. And more often than not, a good performer is likely to see lower expense ratio over the years. Here’s why: a fund that shows consistently good performance attracts more inflows from investors. As asset base swells, the expenses are spread over a larger asset size, thus reducing the per unit expense (expense ratio).
Hence, if you are building a long-term portfolio predominantly consisting of actively managed domestic equity funds then you should probably not worry too much about expense ratio. Yes, if there are two equally good performers and one has a lower expense ratio than the other, then you should perhaps go for the first one.
When it matters
That said, there are times when your expense ratio will matter. Here’s an indicative list as to when it matters most:
1. Index funds are passively managed. If you see an index fund having a higher expense ratio than most other peers, then you should probably avoid it.
2. Debt funds are not geared to generate high returns like equities. Hence, you will do well to check both the asset size and the expense ratio with similar category peers. A fund with mediocre returns and high expense ratio has to be relooked, before investing.
3. If you hold an equity fund that is struggling to beat its benchmark, it is possible that its expense ratio is preventing it from inching up by 1-2 percentage points over its benchmark. Hence, if you are reviewing some of your under performers in your portfolio, check their expense ratio as well.
4. When you are looking at a fund-of-fund or a feeder fund that invests in another international fund, check the offer document for the expense ratio. Do note that the expense ratio will be what the fund incurs plus the expense of the underlying funds.
Where to look
If you are looking at a new fund offer, please go through the offer document section called ‘Fees and expenses of the scheme’. This will give you the maximum expense ratio that a fund can incur. For an existing scheme, you can look at monthly fact sheet or the Key information Memorandum for the recurring scheme expense.
- Merger of Navi Overnight Fund into Navi Liquid Fund and Navi Conservative Hybrid Fund into Navi Aggressive Hybrid Fund
- Intimation of suspension of subscription in Bandhan US Equity Fund of Fund
Winning Funds, Losing Streaks: Decoding the Mystery of Short-Term Underperformance
Wealth Conversations – November 2024- Notice of Change in Fundamental Attributes of DSP Equity & Bond Fund and DSP Quant Fund
Just for clarification ,lets say that the weekly average assets is 5K(example). So 2.5% of 5K gives us 125 and if there are 125 investors then it amounts to 1Rs /investor. This amount is deducted from daily NAV. Is the understanding correct
Hi Rohit, in a very simplistic manner, it is right. But remember, they should have incurred that Rs 125 to charge you. It is not a flat rate that they can simply charge. It is a cap. So if a fund starts incurring lesser expenses then it would be lower. It will also be lower as more number of units are created and the cost does not increase. This is why as funds grow in size, more often than not, their expense ratio comes down. – Vidya
Hello Vidya,
Could you please explain with an example.
Also, how it will impact if MF/SIP purchased directly thr’ AMC instead of other channels e.g. Fundsindia, SBICAPSEC…
Thanks in advance.
If you have a corpus of Rs 10,000 and your one year returns before expense ratio is 15%. Then your corpus grows to Rs 11,500. But If expense ratio is say 2.5% then your net corpus is Rs 11212.5 at the end of one year. But you will not get these calculations. The NAV declared by the fund house will already reflect all these. So no. of units held by you * NAV = Rs 11212.5.
If purchased through an AMC directly then this expense ratio will not have the trail fee paid for distributors. Hence assuming the expense ratio is 2 per cent per year in this case (so far the difference has been abt 0.5% per annum), then your corpus value after expense ratio will be 11270 instead of 11212.
This is a tricky post for FI! With direct investments into MF being the talk of the town, how is the impact on FI? There are enough number of articles with examples of real numbers that give advantages of direct investment over long term. Over a long term, even a lakh or two saved seems enticing so does FI have any plan to counter this?
Sheetal, we have in this blog written on expense ratio as many investors would like to know about it. We have also answered a query from an investor on what is the impact by going direct. We believe that the value add services that we offer in terms of single platform for multi-schemes multi-products, prepackaged portfolios, SIP designers, FundsIndia Select funds (investment worthy funds). unbiased review of funds through newsletters, advisory appointments portfolio x-rays and reviews, ready downloads of capital gains statements, to name a few, (more in the making) will be our tools to help efficient wealth building in the long run. Today, it is not easy to get all this in a single platform by going direct. Yes, direct plans do make your returns higher by perhaps few basis points but that is assuming you buy the right funds. A wrong choice can prove to be much more costly after all. You may wish to read our take on this subject by Srikanth: https://blog.fundsindia.com/blog/index.php/fundsindia-vs-direct-investing/
Thanks Vidya, appreciate your response as always. This is one thing I am sure is not available with direct option! FI is a wonderful portal with ease of usage and ready support and I hope it continues to offer value for its users. I have one request, if there is webpage that shows what are the enhancements or new features in pipeline or being planned in future would be really helpful to keep us excited …
How does having double digit growth make expense ratio insignificant.
If anything it makes it more significant when you taken compounding into account.
If regular and direct has 1 % (100 bps) difference in expense ratio over direct fund. this goes into investors bottom lines. This 1 % then compounds over and over again. If it was SIP for 10 years investor would loose 7.6% overall in regular fund if avg growth of fund is 14% and more if avg growth is more.
It may not be in interest of funds India if investor invests in direct fund. but still is crappy not to do so.
Trade off is really between large loss of money vs some convenience of having everything in single place.
Everything you mentioned is possible using most amc website say sbi. unless one wants to hoard several mf there is no reason to have more than 2 accounts.
as far portfolio anyone can use moneycontrol for free. mf research go to valueresearch.com or fundsindis.com..
Bottom line, expense matters and giving extra pct out as commission is, well stupid.
as it is expense ratio in india are outrageous, govt should cap them at 1.5% but then thats my opinion.
Indiex fund in india has expense ration of 1.37% and in us it is 0.18%.
Atul,
First, your comments were not deleted. I could not get around to responding to comments and hence they remained pending in our admin. list.
We have not claimed that lower expense ratio in direct makes for insignificant returns. The differential works out to about 0.58% annually if the expense ratio is lower by 0.5%. We ave done that math and also tell investors who ask us. In terms of absolute value, over 10-20 year periods it makes a difference.
You seem to assume a few things. One, that every investor will pick the right funds. And as solution providers we know that most investors don’t. The cost of picking the wrong fund is far more damaging on a portfolio that the expense ratio you are talking of.We are talking of losing not a fe but 5-10 percentage points in returns as a result of mediocre or bad picks, wrong asset allocation and wrong category allocation and ill-timing. If you think valueresearch and moneycontrol alone helped people pick the right funds, right category, right asset allocation and helped build the right saving amount, then everybody investing in mutual funds would have built wealth and more people would have followed. It would be the talk of the town (rather country)! 🙂
Investing is complex and investing in mutual funds needs some time and understanding and tracking and unfortunately most people don’t do it. If you can, more power to you. But unless you have dealt with tens and 1000s of investors like we have, I feel your thoughts on how much most investors know and understand may be less practical.
Two, yes, we do what we do best. We offer portfolios based on a customer’s requirement, we encourage people to stay long term discourage churning and earn a livelihood. it is quite unfair for you to accuse us of not providing direct. First of all, direct plan feeds do not come to distributors and therefore no way for us to even provide your direct transaction details today. Next, there are no free lunches. Time and again, it has been proven that in India many people are reluctant to pay for service or advice. When the time is ripe, we shall also be ready 🙂 For now, we distribute products, our business is an open book and discerning investors are free to make their choices.
If you are a direct investor and find the platform you are investing comfortable (quite a few of those who left us came back saying that they found direct mode highly cumbersome and inconvenient compared with the experience and convenience of our platform) I am glad.
I appreciate the effort you may have put in to stay direct and sure you may see the benefits of it. There can be no end to this debatable topic. I shall close it but would always welcome you to open for yourself a FundsIndia account (which is free), not to invest but to understand the kind of features that there is to it. Or to drop into our offices anytime you are in chennai (assuming you are not here). Happy investing. regards, Vidya
Viday,
I appreciate your detailed response, I truly do.
I wasn’t trying to say that everyone can do there own research and funds india is perhaps rught up there isn managing portfolio for people. I was just making my point (and got lengthy) toward one of the previous comment response where you mentioned that with large returns expense ration do not matter.
Yes you help most people with choosing right fund, and yes you do not have access to direct feed (by very nature of it), I wish India was matured market where people would pay fixed cost for services and advises until such time % commission based products will be promoted. Again I was not accusing of not providing direct, but of suggesting it does not matter.
I either case I am quite impressed with way you have put it together, I think I will open fundsindia.com account and look around. I doubt I will shift from direct MF and direct stocks buy and hold method anytime soon.
Vidya, I agree that it is important to select right fund that will give better return than one with lower expense ratio. But once you selected that then paying high expense for same fund is bad karma. say you selected a blue chip fund that has 15% annual return and it’s direct version with 0.5% less expense would have 15.5% annual return . On 10000 sip in 10 years non direct version will have about 87000 smaller corpus. Trivial 0.5% also adds up specifically with high returns funds due to compounding.
When you say few bps does not matter is misguided unless investor is more interested in other perks provided by broker houses.
Fundsindia is right in getting commission for service they provide, no denying that. Problem is incorrect information such as ex ratio does not matter is not in right spirit, why not focus on what you do best.
Please delete this and attached comment I re-posted since i observed previous comment was deleted. I see that older comment is back on now. Don’t want to sound pushy. Thanks again.
I have a query about a particular question. Please help me by informing me on what value expenses are calculated in this particular question.
Mr. A can earn a return of 16% by investing in equity shares of its own. Now he is considering a recently announced equity based MF scheme in which initial expenses are 5.5% and annual recurring expenses of 1.5% . How much should the MF earn to provide Mr.A return of 16%.
please help me with this.
Hello Sudheer, There are no initial entry laods in MFs. So the intial expense mentioned by you does not apply. The recurring exp. called expense ratio is charged on the AUM and before the NAV is declared. In other words, the NAv is post such expense deduction. Hence, if you see a fund return of say 15% (returns calculated merely from NAV), then the return is after expense ratio. hence, if the fund NAV returns is 16% in the example given by you, then it will be the same as direct stock investing.
Hi. I have a quick question about expense ratio, with regards to MF.
Let us say, I did a SIP for 12 months through FI and now the 12 months are over. In fact now, 14 months are over.
I invested a total of 30000 in 12 installments and I have a gain of 2300 Rs.
The Annual return shown to me today (after 14 months) from FundsIndia portal summary page indicates that I have 10% return.
If I want to redeem this, and if the expense ratio is 2.5%, will I get 10-2.5 = 7.5% effective returns?
OR
Is that 10% already taking care of the lower NAV due to expense ratio and hence I would be getting effective 10% returns?
Related question: If the gain is Rs. 2300, and if I redeem, are there any deductions or I should expect the full amount (assume that there are no fluctuations in the market/ NAV) till the redemption process is complete.
Hello Sunil,
The NAV is after expense ratio. Hence the 10% returns you have stated is the actual returns. There will be no expense ratio on it. As for redemption, it would depend on the fund you hold. Some funds have exit load if sold before the specified time. It could be as low as 7 days or 365 days from the date of purchase (you can check for this in the fund details). hence, if at all, you may suffer an exit load if you are selling before the stipulated time. Pl. note that expense ratio is different from exit load. thanks, Vidya
Hi vidya.
I am research scholar and doing my P.hd in finance. My area of interest is mutual fund performance. i want to calculate expense ratio and size of the growth equity schemes on daily basis. Can i get this information and if it is right to consider the expense ratio and size on a daily basis. Thanks
Dear Vidya,
Thanks a lot for your answers to all questions. It was quiet informative. I have a very small question. Does the expense ration which is being charged by Fund houses remains constant throughout or does it change on a frequent basis. If it keeps changing then what would be the frequency?
Kind regards,
Venkat
Hello Venkat,
Expense ratio may change based on the size of assets, of course subject to a cap. The expense ratio, which is deducted from the fund’s average net assets, is accrued on a daily basis (and deducted before arriving at the NAV). If the fund’s assets are small, its expense ratio can be quite high because the fund must meet its expenses from a restricted asset base. Conversely, as the net assets of the fund grow, the expense percentage should ideally diminish as expenses are spread across the wider base. Funds may also opt to waive all or a portion of the expenses that make up their overall expense ratio. Of course we will get to know the ratio only when the monthly factsheets disclose the same.
thanks
Vidya
Hi
I am new to mutual funds. I am initially looking for short-term funds having period of about 6-8 months.
Are management fees (seen in the range of 1-1.25 %) charged over and above the expense ratio? If so, then a fund having 6 % returns for 6 months would get around only 4 % returns which would be same as SB account.
Please advise.
Hello Santosh,
IF you need help choosing funds – pl raise a query using your fundsindia account (help tab – advisor appointment) and our advisors will help you. Else I can also ask them to call you if you say so here. Expense ratio is inclusive of all expenses, including mgmt. fee and hence no question of charging over and above. If a fund has a exit load (for exiting before certain period), that would be the only charge on the NAV. Otherwise NAV is declared post all expenses, thanks, Vidya
Thanks Vidya. I am confused because some funds e.g. HDFC Short Term Opportunities Direct Plan-Growth (see http://economictimes.indiatimes.com/hdfc-short-term-opportunities-direct/mffactsheet/schemeid-16151.cms) has expense ratio of 0.24 % while management fees are 1.25 %. There are others as well who have management fees higher than expense ratio.
If expense ratio includes management fees, then how can management fees be higher than expense ratio?
Hi Santosh, Sorry for the delayed response. Do not go by what these sites capture. mgmt fee is declared half-yearly (you can check the fund house website for this) in Rs terms not in %. Overall exp ratio as a % of net assets was 0.34% as of March and that includes mgmt fee. thanks, Vidya
Thank you very much.
What is the brokerage/commission structure of Fundsindia in stock/share trading?
Hi, Abhijit!
The Demat account annual maintenance fee is Rs 200. The demat account charges will be waived for the first year and will be applicable from the consecutive month thereon.
We charge a brokerage of 30 paise (30 basis points) per Rs 100 which is a competitive rate when compared to other platforms (who charge a minimum of 50 paise (50 basis points)). If the transaction value is less then Rs 8,000, we charge a minimum brokerage charge of Rs 25 per transaction.
Hi
If I invest 3000 p.m in a regular equity scheme which has say a distribution expense of 60 basis points. On my 1st year investment of 24000 I am indirectly incurring a distribution expense of 60 basis points. Once again i incur an indirect expense of 60 basis point in the second year on my 24000 invested in the first year. Isn’t this double costing
Hello Sir, expense ratio has many components – they are recurring expenses incurred for the money you have invested. The distributor is paid a fee for getting/servicing and retaining your money (called the trail fee). There is no double cost there; just as a fund manager fee or the other marketing fee that is charged by the fund house (as part of expense ratio) are also recurring costs.
Mr.A can earn a return money of 16% by investing in equity shares on his own.now he is considering a recently announced equity based mutual fund scheme in which initial expenses are 5.5 percent and annual recurring expenses are 1.5 percent how much should the mutual fund earn to provide Mr.A return of 16%
Hello Sowmya, Your question appears theoretical. There are no initial expenses (entry load) for investors in mutual funds. And returns declared by funds are post expense ratio. So to answer your question on the second part, a pre-expense return of 16.24% will translate to post expense return of 16%.
thanks
Vidya
Dear vidya,
Actually, I have doubt on charges to an investor . Suppose, I have invested 10,000 rs in debt and same amount in equity,so what exact amount I well get after redeem when expense ratio is 2% and brokerage is 50 bps for both the funds. Does expense ratio include all charges? If you dont mind, can you tell me the taxation for both the funds. And how these taxation will be affecting my income tax?
Hello Ameet, I do not know what you mean by brokerage. A mutual fund investor does not pay separate brokerage; unless you invest through your demat account – in which case the broker may charge. If you mean the distribution expense paid by AMCs to brokers, it is included in the expense ratio. It is not in addition. There is no impact in terms of taxation on this. thanks, Vidya
If I opt for monthly SIP of rs 1000 in SBI Blue Chip for a period of 1 year what expense ratio would I need to pay(in rupeees)
Hello Sir,
Irrespective of the tenure of your holding, expense ratio is the same. It is deducted even before the NAV is declared. Hence you do not pay anything separately. But to answer your question, as per the latest factsheet available the expense ratio for the fund was 2.04% per annum.
Vidya
Hi. I have a quick question about expense ratio, with regards to MF.
Let us say, I did a SIP for 12 months through FI and now the 12 months are over. In fact now, 14 months are over.
I invested a total of 30000 in 12 installments and I have a gain of 2300 Rs.
The Annual return shown to me today (after 14 months) from FundsIndia portal summary page indicates that I have 10% return.
If I want to redeem this, and if the expense ratio is 2.5%, will I get 10-2.5 = 7.5% effective returns?
OR
Is that 10% already taking care of the lower NAV due to expense ratio and hence I would be getting effective 10% returns?
Related question: If the gain is Rs. 2300, and if I redeem, are there any deductions or I should expect the full amount (assume that there are no fluctuations in the market/ NAV) till the redemption process is complete.
Hello Sunil,
The NAV is after expense ratio. Hence the 10% returns you have stated is the actual returns. There will be no expense ratio on it. As for redemption, it would depend on the fund you hold. Some funds have exit load if sold before the specified time. It could be as low as 7 days or 365 days from the date of purchase (you can check for this in the fund details). hence, if at all, you may suffer an exit load if you are selling before the stipulated time. Pl. note that expense ratio is different from exit load. thanks, Vidya
Just for clarification ,lets say that the weekly average assets is 5K(example). So 2.5% of 5K gives us 125 and if there are 125 investors then it amounts to 1Rs /investor. This amount is deducted from daily NAV. Is the understanding correct
Hi Rohit, in a very simplistic manner, it is right. But remember, they should have incurred that Rs 125 to charge you. It is not a flat rate that they can simply charge. It is a cap. So if a fund starts incurring lesser expenses then it would be lower. It will also be lower as more number of units are created and the cost does not increase. This is why as funds grow in size, more often than not, their expense ratio comes down. – Vidya
Hello Vidya,
Could you please explain with an example.
Also, how it will impact if MF/SIP purchased directly thr’ AMC instead of other channels e.g. Fundsindia, SBICAPSEC…
Thanks in advance.
If you have a corpus of Rs 10,000 and your one year returns before expense ratio is 15%. Then your corpus grows to Rs 11,500. But If expense ratio is say 2.5% then your net corpus is Rs 11212.5 at the end of one year. But you will not get these calculations. The NAV declared by the fund house will already reflect all these. So no. of units held by you * NAV = Rs 11212.5.
If purchased through an AMC directly then this expense ratio will not have the trail fee paid for distributors. Hence assuming the expense ratio is 2 per cent per year in this case (so far the difference has been abt 0.5% per annum), then your corpus value after expense ratio will be 11270 instead of 11212.
I have a query about a particular question. Please help me by informing me on what value expenses are calculated in this particular question.
Mr. A can earn a return of 16% by investing in equity shares of its own. Now he is considering a recently announced equity based MF scheme in which initial expenses are 5.5% and annual recurring expenses of 1.5% . How much should the MF earn to provide Mr.A return of 16%.
please help me with this.
Hello Sudheer, There are no initial entry laods in MFs. So the intial expense mentioned by you does not apply. The recurring exp. called expense ratio is charged on the AUM and before the NAV is declared. In other words, the NAv is post such expense deduction. Hence, if you see a fund return of say 15% (returns calculated merely from NAV), then the return is after expense ratio. hence, if the fund NAV returns is 16% in the example given by you, then it will be the same as direct stock investing.
This is a tricky post for FI! With direct investments into MF being the talk of the town, how is the impact on FI? There are enough number of articles with examples of real numbers that give advantages of direct investment over long term. Over a long term, even a lakh or two saved seems enticing so does FI have any plan to counter this?
Sheetal, we have in this blog written on expense ratio as many investors would like to know about it. We have also answered a query from an investor on what is the impact by going direct. We believe that the value add services that we offer in terms of single platform for multi-schemes multi-products, prepackaged portfolios, SIP designers, FundsIndia Select funds (investment worthy funds). unbiased review of funds through newsletters, advisory appointments portfolio x-rays and reviews, ready downloads of capital gains statements, to name a few, (more in the making) will be our tools to help efficient wealth building in the long run. Today, it is not easy to get all this in a single platform by going direct. Yes, direct plans do make your returns higher by perhaps few basis points but that is assuming you buy the right funds. A wrong choice can prove to be much more costly after all. You may wish to read our take on this subject by Srikanth: https://blog.fundsindia.com/blog/index.php/fundsindia-vs-direct-investing/
How does having double digit growth make expense ratio insignificant.
If anything it makes it more significant when you taken compounding into account.
If regular and direct has 1 % (100 bps) difference in expense ratio over direct fund. this goes into investors bottom lines. This 1 % then compounds over and over again. If it was SIP for 10 years investor would loose 7.6% overall in regular fund if avg growth of fund is 14% and more if avg growth is more.
It may not be in interest of funds India if investor invests in direct fund. but still is crappy not to do so.
Trade off is really between large loss of money vs some convenience of having everything in single place.
Everything you mentioned is possible using most amc website say sbi. unless one wants to hoard several mf there is no reason to have more than 2 accounts.
as far portfolio anyone can use moneycontrol for free. mf research go to valueresearch.com or fundsindis.com..
Bottom line, expense matters and giving extra pct out as commission is, well stupid.
as it is expense ratio in india are outrageous, govt should cap them at 1.5% but then thats my opinion.
Indiex fund in india has expense ration of 1.37% and in us it is 0.18%.
Atul,
First, your comments were not deleted. I could not get around to responding to comments and hence they remained pending in our admin. list.
We have not claimed that lower expense ratio in direct makes for insignificant returns. The differential works out to about 0.58% annually if the expense ratio is lower by 0.5%. We ave done that math and also tell investors who ask us. In terms of absolute value, over 10-20 year periods it makes a difference.
You seem to assume a few things. One, that every investor will pick the right funds. And as solution providers we know that most investors don’t. The cost of picking the wrong fund is far more damaging on a portfolio that the expense ratio you are talking of.We are talking of losing not a fe but 5-10 percentage points in returns as a result of mediocre or bad picks, wrong asset allocation and wrong category allocation and ill-timing. If you think valueresearch and moneycontrol alone helped people pick the right funds, right category, right asset allocation and helped build the right saving amount, then everybody investing in mutual funds would have built wealth and more people would have followed. It would be the talk of the town (rather country)! 🙂
Investing is complex and investing in mutual funds needs some time and understanding and tracking and unfortunately most people don’t do it. If you can, more power to you. But unless you have dealt with tens and 1000s of investors like we have, I feel your thoughts on how much most investors know and understand may be less practical.
Two, yes, we do what we do best. We offer portfolios based on a customer’s requirement, we encourage people to stay long term discourage churning and earn a livelihood. it is quite unfair for you to accuse us of not providing direct. First of all, direct plan feeds do not come to distributors and therefore no way for us to even provide your direct transaction details today. Next, there are no free lunches. Time and again, it has been proven that in India many people are reluctant to pay for service or advice. When the time is ripe, we shall also be ready 🙂 For now, we distribute products, our business is an open book and discerning investors are free to make their choices.
If you are a direct investor and find the platform you are investing comfortable (quite a few of those who left us came back saying that they found direct mode highly cumbersome and inconvenient compared with the experience and convenience of our platform) I am glad.
I appreciate the effort you may have put in to stay direct and sure you may see the benefits of it. There can be no end to this debatable topic. I shall close it but would always welcome you to open for yourself a FundsIndia account (which is free), not to invest but to understand the kind of features that there is to it. Or to drop into our offices anytime you are in chennai (assuming you are not here). Happy investing. regards, Vidya
Viday,
I appreciate your detailed response, I truly do.
I wasn’t trying to say that everyone can do there own research and funds india is perhaps rught up there isn managing portfolio for people. I was just making my point (and got lengthy) toward one of the previous comment response where you mentioned that with large returns expense ration do not matter.
Yes you help most people with choosing right fund, and yes you do not have access to direct feed (by very nature of it), I wish India was matured market where people would pay fixed cost for services and advises until such time % commission based products will be promoted. Again I was not accusing of not providing direct, but of suggesting it does not matter.
I either case I am quite impressed with way you have put it together, I think I will open fundsindia.com account and look around. I doubt I will shift from direct MF and direct stocks buy and hold method anytime soon.
Vidya, I agree that it is important to select right fund that will give better return than one with lower expense ratio. But once you selected that then paying high expense for same fund is bad karma. say you selected a blue chip fund that has 15% annual return and it’s direct version with 0.5% less expense would have 15.5% annual return . On 10000 sip in 10 years non direct version will have about 87000 smaller corpus. Trivial 0.5% also adds up specifically with high returns funds due to compounding.
When you say few bps does not matter is misguided unless investor is more interested in other perks provided by broker houses.
Fundsindia is right in getting commission for service they provide, no denying that. Problem is incorrect information such as ex ratio does not matter is not in right spirit, why not focus on what you do best.
Please delete this and attached comment I re-posted since i observed previous comment was deleted. I see that older comment is back on now. Don’t want to sound pushy. Thanks again.
Thanks Vidya, appreciate your response as always. This is one thing I am sure is not available with direct option! FI is a wonderful portal with ease of usage and ready support and I hope it continues to offer value for its users. I have one request, if there is webpage that shows what are the enhancements or new features in pipeline or being planned in future would be really helpful to keep us excited …
What is the brokerage/commission structure of Fundsindia in stock/share trading?
Hi, Abhijit!
The Demat account annual maintenance fee is Rs 200. The demat account charges will be waived for the first year and will be applicable from the consecutive month thereon.
We charge a brokerage of 30 paise (30 basis points) per Rs 100 which is a competitive rate when compared to other platforms (who charge a minimum of 50 paise (50 basis points)). If the transaction value is less then Rs 8,000, we charge a minimum brokerage charge of Rs 25 per transaction.
Hi
I am new to mutual funds. I am initially looking for short-term funds having period of about 6-8 months.
Are management fees (seen in the range of 1-1.25 %) charged over and above the expense ratio? If so, then a fund having 6 % returns for 6 months would get around only 4 % returns which would be same as SB account.
Please advise.
Hello Santosh,
IF you need help choosing funds – pl raise a query using your fundsindia account (help tab – advisor appointment) and our advisors will help you. Else I can also ask them to call you if you say so here. Expense ratio is inclusive of all expenses, including mgmt. fee and hence no question of charging over and above. If a fund has a exit load (for exiting before certain period), that would be the only charge on the NAV. Otherwise NAV is declared post all expenses, thanks, Vidya
Thanks Vidya. I am confused because some funds e.g. HDFC Short Term Opportunities Direct Plan-Growth (see http://economictimes.indiatimes.com/hdfc-short-term-opportunities-direct/mffactsheet/schemeid-16151.cms) has expense ratio of 0.24 % while management fees are 1.25 %. There are others as well who have management fees higher than expense ratio.
If expense ratio includes management fees, then how can management fees be higher than expense ratio?
Hi Santosh, Sorry for the delayed response. Do not go by what these sites capture. mgmt fee is declared half-yearly (you can check the fund house website for this) in Rs terms not in %. Overall exp ratio as a % of net assets was 0.34% as of March and that includes mgmt fee. thanks, Vidya
Thank you very much.
Dear Vidya,
Thanks a lot for your answers to all questions. It was quiet informative. I have a very small question. Does the expense ration which is being charged by Fund houses remains constant throughout or does it change on a frequent basis. If it keeps changing then what would be the frequency?
Kind regards,
Venkat
Hello Venkat,
Expense ratio may change based on the size of assets, of course subject to a cap. The expense ratio, which is deducted from the fund’s average net assets, is accrued on a daily basis (and deducted before arriving at the NAV). If the fund’s assets are small, its expense ratio can be quite high because the fund must meet its expenses from a restricted asset base. Conversely, as the net assets of the fund grow, the expense percentage should ideally diminish as expenses are spread across the wider base. Funds may also opt to waive all or a portion of the expenses that make up their overall expense ratio. Of course we will get to know the ratio only when the monthly factsheets disclose the same.
thanks
Vidya
Hi vidya.
I am research scholar and doing my P.hd in finance. My area of interest is mutual fund performance. i want to calculate expense ratio and size of the growth equity schemes on daily basis. Can i get this information and if it is right to consider the expense ratio and size on a daily basis. Thanks
If I opt for monthly SIP of rs 1000 in SBI Blue Chip for a period of 1 year what expense ratio would I need to pay(in rupeees)
Hello Sir,
Irrespective of the tenure of your holding, expense ratio is the same. It is deducted even before the NAV is declared. Hence you do not pay anything separately. But to answer your question, as per the latest factsheet available the expense ratio for the fund was 2.04% per annum.
Vidya
Mr.A can earn a return money of 16% by investing in equity shares on his own.now he is considering a recently announced equity based mutual fund scheme in which initial expenses are 5.5 percent and annual recurring expenses are 1.5 percent how much should the mutual fund earn to provide Mr.A return of 16%
Hello Sowmya, Your question appears theoretical. There are no initial expenses (entry load) for investors in mutual funds. And returns declared by funds are post expense ratio. So to answer your question on the second part, a pre-expense return of 16.24% will translate to post expense return of 16%.
thanks
Vidya
Dear vidya,
Actually, I have doubt on charges to an investor . Suppose, I have invested 10,000 rs in debt and same amount in equity,so what exact amount I well get after redeem when expense ratio is 2% and brokerage is 50 bps for both the funds. Does expense ratio include all charges? If you dont mind, can you tell me the taxation for both the funds. And how these taxation will be affecting my income tax?
Hello Ameet, I do not know what you mean by brokerage. A mutual fund investor does not pay separate brokerage; unless you invest through your demat account – in which case the broker may charge. If you mean the distribution expense paid by AMCs to brokers, it is included in the expense ratio. It is not in addition. There is no impact in terms of taxation on this. thanks, Vidya
Hi
If I invest 3000 p.m in a regular equity scheme which has say a distribution expense of 60 basis points. On my 1st year investment of 24000 I am indirectly incurring a distribution expense of 60 basis points. Once again i incur an indirect expense of 60 basis point in the second year on my 24000 invested in the first year. Isn’t this double costing
Hello Sir, expense ratio has many components – they are recurring expenses incurred for the money you have invested. The distributor is paid a fee for getting/servicing and retaining your money (called the trail fee). There is no double cost there; just as a fund manager fee or the other marketing fee that is charged by the fund house (as part of expense ratio) are also recurring costs.