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Costs of regular mutual fund plans fall sharply, lower in direct plans

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With the revised cost slabs for mutual funds kicking in from April 1, the total expense ratio (TER) for the largest equity funds has fallen sharply. But while the cut is quite significant in the regular plans, it is comparatively modest in the direct plan variant.

Data shows that since March 31, the TER for the regular plan of the top-10 largest equity funds fell by 21 basis points on an average. Comparatively, the direct plan TER declined by 14 basis points. For instance, Kotak Standard Multicap saw its regular plan TER fall 35 basis points from 2.12% to 1.77% during this period. Meanwhile, its direct plan TER reduced by 20 basis points from 0.93% to 0.73%.

While the fall in expense ratio is higher for direct plans in percentage terms, the regular plans have seen bigger cuts in absolute terms. Direct plans are sold directly to the investor, so these do not carry the cost of distributor commissions under regular plans.

The Securities and Exchange Board of India (Sebi) norms state that the difference in TER between the two variants should only reflect the distributor commission under the regular plan. The difference between the regular and direct plan TER on the two dates indicates that distributor commission has come down across most schemes, barring a few exceptions.

However, this may change as and when funds account for the distributor expenses at the end of the month. Some fund houses may pass on some of the cut in regular plan TER to distributors while others absorb the hit. A more accurate picture of how costs have changed between the two plans will likely come only in a few months.

Direct plan investors should note that costs will remain dynamic as distributor commissions undergo changes.

Cut in regular plans is sharper than direct plans

Regular plan TER

SchemeCorpus
(Rs crore)
31-Mar-201912-Apr-2019Change
Kotak Standard Multicap23,8812.121.77-0.35
HDFC MId-Cap Opportunities22,7912.171.88-0.29
HDFC Equity22,5032.061.79-0.27
Aditya Birla SL Frontline Equity22,1752.251.99-0.26
SBI Bluechip22,1001.821.99-0.17
ICICI Prudential Bluechip21,5792.281.85-0.43
Axis Long Term Equity18,8521.771.770.00
HDFC Top 10016,6102.081.85-0.23
ICICI Prudential Value Discovery16,5922.261.88-0.38
Motilal Oswal Multicap 3513,5201.951.86-0.09

Data is for the 10 largest equity funds; Source: Ace MF, company websites


Direct plan TER

SchemeCorpus
(Rs crore)
31-Mar-201912-Apr-2019Change
Kotak Standard Multicap23,8810.930.73-0.20
HDFC MId-Cap Opportunities22,7911.221.06-0.16
HDFC Equity22,5031.511.23-0.28
Aditya Birla SL Frontline Equity22,1751.151.11-0.04
SBI Bluechip22,1001.211.09-0.12
ICICI Prudential Bluechip21,5791.311.21-0.10
Axis Long Term Equity18,8520.840.66-0.18
HDFC Top 10016,6101.501.33-0.17
ICICI Prudential Value Discovery16,5921.281.26-0.02
Motilal Oswal Multicap 3513,5201.040.96-0.08

Source: Economic Times