Experts say that it is unlikely that other fund houses will start cutting expense ratios in their equity funds
Mumbai: After Quantum Asset Management Co. Ltd, with assets under management (AUMs) worth ₹ 858 crore, announced a plan to cut in its expense ratio on Thursday, PPFAS Asset Management Co. Ltd. said that it would also cut the expense ratio in its sole scheme.
While Quantum asset management announced a gradual roadmap of reducing expense ratio for some of its schemes, Quantum Long Term Equity Fund, Quantum Liquid Fund, Quantum Dynamic Bond Fund and Quantum Gold Fund, in sync with an increase in their AUMs, PPFAS Asset Management Pvt. Ltd said that it has reduced its total expense ratio chargeable to Parag Parikh Long Term Value Fund since 1 January, by 20 basis points, to 1.80% per annum for the direct plan and to 2.3% per annum for the regular plans. One basis point is one hundredth of a percentage point.
However, experts say that it is unlikely that other fund houses will start cutting expense ratios in their equity funds.
"This is not a start of a trend of reduction in expense ratios," said Dhirendra Kumar, chief executive of Value Research, a mutual fund analytics firm.
"These two funds had the pull effect. They have been able to interact directly with end investors, and the schemes are sold directly," Kumar said referring to Quantum and PPFAS.
"All other funds are entirely dependent on distribution channels." said Kumar.
Kumar pointed that more than two-third of fund houses' expenses can be attributed to selling expenses, and it would not be feasible for other fund houses to follow suit.
The expense ratio is a measure of the fund house's costs to operate a particular mutual fund scheme.
It is derived by dividing fund's operating expenses by the average assets under management (AUM).
Mint reviewed the expense ratios of various equity-oriented funds, excluding sector-specific and exchange traded funds (ETFs) and the expense ratios of regular funds averaged to 2.28%.
In case of direct funds, the average expense ratio, excluding sectoral funds and passively-managed funds like index funds and ETFs, was 1.54%.
An email sent to HDFC Mutual Fund, ICICI Prudential AMC remained unanswered. Navneet Munot, chief investment officer (CIO) of SBI MF and Sundeep Sikka, CEO of Reliance MF, did not respond to calls.
A. Balasubramanian, CEO for Birla Sun Life Asset Management Co., said his fund house has no such plans, and said some fund houses such as Quantum sold directly to investors, and were capable or lower expense ratios.
Some felt, that eventually the expense ratios would come down, but not in a hurry.
"These are two very small fund houses, but the move is big. Ideally, the larger the fund houses should have lower ratios. It could happen with direct plans. The discussion has started about justifying the trail commission, said Kavitha Menon, a Mumbai-based financial planner.
Trail commissions are paid monthly to mutual fund distributors and are calculated on a daily basis as a percentage of their AUMs. They are paid as long as the investor remains invested in the schemes.
"While we may not see immediate cuts from other fund houses, on a longer-term, these expense ratios have to come down," added Menon.
The original article could be seen here.