Sebi’s gift to the MF industry…

Well Sebi says the fund industry will be able to charge 2.75% p.a. as fund expenses. Since you will bear the service tax, brokerage, etc. assuming that it will cost you about 3% p.a. is a fair call. This is charged on a weekly basis, so you need to take the impact of weekly compounding.

To take a simple example, if you did a Rs. 100,000 SIP for a period of 30 years and the fund grew at 8% p.a. you will Rs. 1.5 crores. Now with a 3% asset management charge (amc) you will be left with about Rs. 83 lakhs.

Now, how will the industry react to this is going to be fun:

a. The Mutual fund houses should be thrilled that they have got what they asked for. I am a little lazy to do an article about which was better – a 2% entry load (on the amount invested) or a 0.25% amc (on the amount accumulated.  Do it and it will be fun.

b. The Media: it should be thrilled – the fund houses will have more money to spend.

c. The distributor: He will able to get more money out of the fund houses, so he too should be happy.

The media will say NOW THAT the fund houses has more money, they should spend MORE on investor education (circa 2015 scam: Inv Education). The fund houses should increase the reach of mutual funds (more locations for advertising).

d. The Investor: OMG, you muppet, all this is being done FOR YOUR GOOD, so stop cribbing.

Hmmmm am i being too critical? well i have seen the birth of this fund industry – will i live to see the demise? I hope not.

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19 Responses to “Sebi’s gift to the MF industry…”

  1. Dr M Chandrashekhar on July 18th, 2012 at 12:31 pm

    This must have been Shri MMS’s first gift to Investors as the Finance Minister !

    Great !Lets enjoy the r–e instead of cribbing !

  2. Dr M Chandrashekhar on July 18th, 2012 at 12:35 pm

    This must have been our good old MMS’s first gift to MF Investors as Finance Minister !

    First, Infosys s—–d you & now this one — Great , lets enjoy the fun instead of cribbing !

  3. sigh,yet subra wants a regulator for real estate. it is time to give up on that quickfix solution.

  4. What is the existing rate? Is this 2.75% the maximum allowed and can the fund house fix it own rate below this?

  5. surprised that Ayn Rand fans are not posting – can u not see Atlas Shrugged coming true? LOL

  6. Please let us know we should continue our sip?

  7. if u do not know how to pick direct equities, MFs are still a good option. It has got a ‘tad’ more expensive as my friends in the mainstream media put it…

  8. what are we paying for, but?

  9. mira d, for their sales expenses.lot of people have no use of the distributor but 95% are little babies without them.so the 5% have to subsidize the rest.

    @subra. what ayn rand philosophy is in the picture here? that govt babus will continue to play whimsically ?

  10. AMCs are charging exp ratios, so that they can manage the fund…they can pay to fund manager for beating the benchmark…..now if charges are increased it will eat up the returns also….according to letest SPIVA report almost 55% of the funds are underperforming the benchmark….u never know which fund will outperfom in future….not sure if investor shoud really pay higher charges…..

  11. that the real big players will play with the rules so that they can continue to get rent, just because they can manipulate the rules. Read the John Galt speech…

  12. So they’re going to charge more to manage lesser?

    (AUM’s have been falling)

  13. When the middlemen commissions were stopped by SEBI for investment into MFs, surprisingly AUMs have not gone up and to everyone shock they got dipped. Infact at this time, ULIPs premium collection amounts have gone up. Looks like without marketing even sane products fail in any field. With marketing people are buying colas, club memberships and what not.

    Now biased articles pour in the media perpetrated by vested interests that inspite of raised charges, it is tremendously advantage for the customer on various fronts. The customer is the key stakeholder is long forgotten. I have no doubt that Indian market always behaves on contra mode.

  14. A entry load of even 2.25% as in 2009 is a lot better than this i guess. This AMC charge will eat our money every year,entry load would have been one time loss.Why the hell are we paying service tax outside AMC charge..is this how you are going to develop MF industry..I should learn a lot and do direct stock picking

  15. Looks like the MF industry finally realized the power of compounding…lol

  16. I am doing SIP through icici direct which already deducting some charges on that.. is this amount over that charges??

  17. Time to look for funds with lower AMC – May be Quantum is the fund house of the future! They are bold enough to cap the AMC

  18. Are there any better investment options. Just started my sips, a year back. First the sensex has dropped after I started 🙂 now this!

  19. It will increase conflict of interest. Meaning MF “A” can use their own brokerage company A to buy/sell equity without any competitive brokerage cost as now user bears cost. Parent company of them, A benefits.

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