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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