How expensive is your fund?

From April 1 this year, SEBI had asked all mutual funds to revise their total expense ratios (TERs) in line with a new and tighter slab structure. While SEBI's intent was to make mutual funds less expensive, some schemes have found ingenious ways to either retain high TERs or even hike them after this rejig. So, based on the TER mailers that your schemes have been sending you, how do you know if your scheme is fleecing you? It's difficult to gauge this in isolation because you have no idea of what its peers are charging or what is reasonable for the category. That's why this cover story is dedicated to taking a deep dive into mutual fund TERs so that you have benchmarks for each category against which you can measure your scheme. All the TERs mentioned pertain to May 31, 2019, two months after SEBI's new rules took effect. Large-cap funds Given the struggle that large-cap equity funds have had in keeping up with the indices recently, you would have expected these funds to display some humility and slash their expense ratios to remain in the game. But this simply hasn't happened, with actively managed large-cap funds still charging 2.23 per cent on an average after SEBI's cuts. But with established performers available at lower TERs, investors in this category need to think twice before investing in any fund that charges over 2 per cent. The TER differential between the regular and direct plans of large-cap funds stood at about 1.20 percentage points. While active large-cap schemes aren't particularly cheap after the SEBI rejig, passive funds in the category offer mouth-watering deals. The average TER for passive funds in the large-cap category (ETFs and open-end funds included) was 0.36 per cent, with the median at just 0.17 per cent. Click he

This article was originally published on August 30, 2019.