The Securities and Exchange Board of India (SEBI) has planned to redistribute the fees structure of the mutual fund so that the investors can manage their money in a better way. This will result in a reduction in the total cost of investment in an equity fund. The fee that the mutual funds accumulate from the investors each year hold and manage their money will be capped from the existing 2.5% to 2.25%. The expense ratio of the large equity fund scheme is expected to be capped at 1.25%. As the mutual fund becomes less expensive, it will control the flow of money from the investors to the distributors; this ultimately aims at curbing the miss-selling of investment schemes. Let’s find out how the investors of the mutual funds are going to be benefitted by this change.

The impact of the change on the mutual fund investors:

The policy of SEBI aims at facilitating more investments towards the funds. The following are the ways through which the reduction in the price of the mutual funds impacts the investors:
1.The cost of investing in mutual funds will come down due to the reduction in the price.
2.The reduced cost will leave more money in the hands of the investors. It will accelerate the growth of the assets and bring more earnings for the investors.
3.The expense ratio tends to impact the fund returns directly. The higher is the expense ratio; the lower will be the returns of the investors. When the expense ratio of the investor is lower; the expected returns are higher.
4.It will be more convenient to invest in funds that perform consistently well and have a lower expense ratio than the expensive funds with higher risks.
5.The direct plans will become cheaper than the regular plans. The investors who possess thorough knowledge and awareness about the market and investment tactics will be able to generate more earnings by investing in direct plans.
6.The SEBI mandate will bring the total expense ratio down by 30-35 points which will directly ensure better and higher earnings for the investors on their investments.
7.Overall, the move tends to have a positive impact on the investors but it can also cause a backlash among the investors and the independent financial advisors and the distributors. The lower expense ratio will result in a struggle among them who would want to squeeze in more commissions for themselves from the investments. The investments of the small investors will not earn sufficient commission for the IFAS who will find it less appealing to offer their service to the small investors.

Besides market conditions, a slight change in the economic and investment policies of India tend to have a drastic impact on the investments of the people. Find out in details from our expert financial analysts and professional advisors how this reduction in the cost of mutual funds is going to benefit you. Contact us to find out how to make the most of this change.