The Charge of Mutual Fund Investment Expense Ratio Reduced

A charge of Mutual fund Investment Expense Ratio Reduced

SEBI has reduced the charges of mutual funds. Now the rules for the expense ratio of mutual funds have changed. According to the new rule, the expense ratio of the large mutual fund scheme will be greatly reduced. This expense ratio cuts our investment every year. Companies charge it instead of giving their services.

In the board meeting, SEBI has changed the accounting of expense ratio. After this change, most people will benefit from those who have invested in the big scheme. Direct mutual fund investors will also benefit from this. They are already saving the distributor’s commission.

Main Points of Mutual Fund Expense Ratio

Mutual fund Investment
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1. The expense ratio came down

Now mutual fund companies will be able to cut Expense Ratio from 1.05% to 2.25%. The maximum rate of expense ratio will depend on the size of the fund. Prior to this, the maximum expense ratio was range from 1.75% to 2.5%.

 The expense ratio came down
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2. The lower the charges as much as the scheme

Such mutual fund schemes, which have more investment and cash value of more than Rs. 50,000 crores, will be able to cut the maximum of 1.05%. Earlier, it was allowed to maintain an expense ratio of 1.75%. Keep in mind that these limits are for the mutual fund scheme, which is mostly held in shares. For other types of non-equity schemes, this limit is only 0.8%.

3. Highest charge when fund size is less than 500 crores

Highest charge when fund size is less than 500 crores
Image Source: the economic times

Still, some investors will have to pay more. The mutual fund schemes whose funds size is less than 500 crores will be able to charge an expense ratio of 2.25%. The non-equity fund of this size will be able to charge a maximum of 2.0%.

4. The same rate for Index Fund and ETF

The maximum expense ratio for the index fund and ETF is fixed at 1 percent. In the case of these funds, the size will not make any difference.

5. Big savings to investors

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Due to this change in the rules of expense ratio, investors will have a big advantage. It is estimated that the total investment of the investors will be Rs.1.1300 crores. At present, a total of 25 lakh crore rupees are invested in mutual fund schemes. About 13,000 crores of rupees are deducted every year as the expense ratio.

6. Charges for close-ended fund

An expense ratio of the close-ended fund is kept low. Close-ended funds investing more in shares will be able to charge a maximum of 1.25% per year. While non-equity funds will be able to take maximum expense ratio of 1%. The close-ended fund is set to decide the time for withdrawal and withdrawal.

7. Profit on having more than 2000 crores fund size

If the fund value of your mutual fund scheme is 2000 crores or more, then the new rule of SEBI will also benefit you. But there is no change in the mutual fund scheme’s Charge of Fund size.

8. Change the way of the distributor’s commission
Image Source: the economic times

SEBI has also said that no new commission will be given to the distributor of the mutual fund initially. Rather they will get annual commission These steps have been taken to prevent mis-selling. However, in the case of SIP investment, the distributor can get an upfront commission.

9. The transparent way of commission

Now the distributor will be given commission directly from the money collected in the scheme. Any other back door will be barred from commissioning.

10. High Charges on Investment from Small Towns

If mutual fund companies bring investment from small towns, they are allowed to take an expense ratio of 0.3 percent more. This permission is for investment coming from there. And these investments must be from the retail investor.

Chart of expense ratio

Expense Ratio (%) of AUM (Crores) Share-Principal Scheme of Fund Expense Ratio of Non-Share Scheme

  • 0 – 500
  • 2.25 2.00
  • 500 – 750 2.00 1.75
  • 750 – 2,000 1.75 1.50
  • 2,000 – 5,000 1.60 1.35
  • 5,000 – 10,000 1.50 1.25

Expense ratio will decrease by 0.05% on every 5000 million increase in 10,000 – 50,000 AUM; Expense ratio decreases by 0.05% on every 5000 million increase in AUM

> 50,000 1.05 0.80

So now you know what is the expense ratio of mutual funds. After knowing this, if you want to invest in a mutual fund for long periods of time, then read our post ‘Top 5 Scheme for Long Term’.