Why are AMCs consistently increasing their expense ratios? You being a board member of SEBI, please try and protect retail investors.
I am not a part of the SEBI board. I am just a member of its advisory committee. The SEBI board takes decisions pertaining to all issues and regulations. However, as a part of the Advisory Committee, I definitely try to voice my views on issues concerning investors.
Coming to your question, AMCs increase their expense ratios just to make more money. However, SEBI has made expenses more transparent now. Expenses are now visible on a daily basis. Also, SEBI has passed many regulations related to the expense ratios. If you go back eight months down the line, you would see that SEBI reviewed the expense rules that we had for all mutual funds and expenses got reduced substantially. SEBI also mandated that the commission on the regular plans of mutual funds be paid to its distributors on a trail basis rather than upfront commissions. This will help in driving good conduct amongst distributors as they will sell only those funds that are needed by investors.
For debt funds, expense ratios form a very significant part of the funds and hence, are a significant differentiator for these funds.
However, when it comes to the expense ratios of equity mutual funds, it is a different story altogether. A fund that has delivered superior performance over a complete market cycle can increase its expense ratio by 5-10 basis points on the back of its performance. However, equity funds are facing pressure from some low-cost alternatives, such as ETFs and index funds, that are available in the market today. These passive funds are slowly making their way in the industry. Hence, if a fund manager is charging high expenses for his/her fund and is not able to beat its benchmark, investors will obviously look for low cost alternatives. Investors have the right to choose the funds they wish to invest in.