Dhirendra Kumar says why GST won't have any significant effect on expense ratios
17-Jul-2017 •Research Desk
Will the expense ratio of direct and other plans of mutual funds including equity and debt go up with GST or will they be lower?
- Ashish, Gurugram
It will be about the same. The service tax on the management fee goes up from 15 to 18%. But the fund company will get a larger input tax credit. So far the goods purchased by the fund didn't get any credit because by and large they are service companies. It will mostly be a very neutral thing for mutual funds. But generally speaking, mutual fund expenses are very high. Indian mutual funds are the most expensive in the world based on the management fee. The reason was that mutual funds did not have scale - once they got bigger, the expense could have come down. However, the per unit cost has still not come down. The highest expense possible in an equity fund, a little over 3% (taking into account expenses and taxes), is pretty high. 3% of your capital disappearing could be 10% of your total gains or more. That is quite alarming. The regulator, investors and mutual fund investors have to revisit this. GST is a neutral event.