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Hike in Charges

Existing mutual fund investors could face an additional cost of at least 50 basis points…

I want to know if the hike in charges will impact existing investors and if so then by how much? Will the rules that have been changed by SEBI also have an impact on the returns that one gets from funds?
- Priya Khanna

Our estimate from what we know so far is that the cost will go up by at least 50 basis points for existing investors. Today, there is a ceiling in the management fee that mutual fund companies can charge, but that will also go up because the fungibility will allow them to earn more if they're able to reduce the cost on other elements. And since the service tax will be additional, there could be a 20 per cent to 35 per cent increase in cost of fund management.

Coming to your second query, these additional expenses will be deducted from the fund's NAV on a day-to-day basis, which means that they will impact the returns you earn as well. For example, if a fund that earns an annualised 1o per cent returns hikes charges by 50 basis points, then its annualised returns will come down to 9.5 per cent.

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