There have been many changes made by the mutual fund regulator (SEBI). Many of them have hurt the industry – and hit badly.

However the biggest change which has hurt – has hurt the distributor, not the fund houses. That is the crux of the change. Did the AMFI protest ? The answer is NO. Why?

Simply because it was hurting only the distributor, not the manufacturer. So the association of manufacturers did not bother!

Now let us take a case of a mutual fund buying shares worth Rs. 100, and let us say they pay 1% as BROKERAGE (they actually pay 0.1% or less) – what do you think happens to the brokerage?

It gets treated as expense…correct? Hell, no. It gets added to the cost of the asset – so the NAV will go up by Re 1. So the nav in this case will go up by Rs. 101. This actually means the MUTUAL FUND could not care about how much brokerage that they pay….sad, but the accountants will tell you that it is the way it is!

Now if suppose SEBI says that brokerage paid should be treated as an expense (and within the cap of 1.5%!)….

the industry will SCREAM…and the manufacturer’s association will also scream….and all hell will break loose…ha ha what fun!!

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  1. Subra,
    I thought the NAV is the market value of the investments divided by the number of units issued and outstanding on a particular day. If the brokerage is added to investment that will only increase the book value of the investment and not the NAV. Please do correct me, if I am wrong.

  2. Does it mean a manager can increase value of its portfolio by simply churning randomly? 🙂 In the end, AMC is loser and it has to pay more whenever investor withdraws the money.

  3. how is the amc the loser? it is the UNIT HOLDER who is the loser. Read ‘you’.

    When you play poker and you do not know who is going to be had that evening, its you!!

  4. Seems like I have missed the point. I am still novice in the market.
    I always thought that AMC is supposed to pay me amount = (number of units x NAV). So if I sold the units today, how can AMC pay me back 101 Rs/ unit ? For simplicity (and to remove intraday-trading from the picture), assume that market did not move at all today. Every share was available at yesterday’s price.
    I think the NAV should “decrease” by the brokerage amount. so it should be 99 at the end of today.

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