Investors in large MF schemes to gain most as Sebi cuts total expense ratio

The Securities and Exchange Board of India (Sebi) has announced cut in total expense ratio (TER) for equity mutual fund schemes.

 The cut in TER—the fees charged to investors by a fund house—will have to be done at a scheme level as per slabs set by the regulator. An analysis by Prabhudas Lilladher shows schemes with large corpus will see highest reduction in TER of up to 25 basis points. 

Equity schemes with assets under management (AUM) of more than Rs 20 billion will have to reduce TER between one basis point (bps) and 25 bps. They account for a third of total schemes. 

Similarly, smaller schemes with corpus of less than Rs 5 billion, which account for 38 per cent of overall schemes, could see reductionby up to 25 bps. Only schemes with size between Rs 5 billion and Rs 20 billion could see an increase in TER. 

The increase, however, will be up to just one basis point. These schemes account for 28 per cent of the market. Experts say even a small cut in fees will help investors save a lot in the long term. 

Prabhudas Lilladher says the latest Sebi diktat will impact as many as 213 schemes, or 72 per cent, of the open-ended equity-oriented schemes including equity-oriented hybrid funds.