Sahara Mutual Fund has taken a courageous step under its latest diversified equity scheme, Sahara Wealth Plus. It says it won't charge any management fee if the fund delivers negative return and also underperforms its benchmark, the S&P CNX 500. Even if the fund beats the benchmark but delivers negative return, the fund house would charge only half the maximum permissible management fee. The same fee would be applicable if the fund underperforms the benchmark, while full fee would be charged if the fund delivers positive return and also beat the S&P CNX 500.
As per the SEBI regulations, a fund can charge a maximum of 2.5 per cent of its total assets as the expense ratio. The maximum permissible expenses has two components--third party expenses and the management fees.
Out of the above said 2.5 per cent, mutual funds can charge management fees of not more than 1.25 per cent of the assets, provided the assets are less than or equal to Rs 100 crore. For the excess amount over Rs 100 crore, they can charge 1 per cent of such excess as management fees.
In the case of Sahara Wealth Plus fund, while the management fee would depend on the fund's performance, the third party expenses would be like any other fund.
The fund will be open for initial subscription between July 4 and July 22, 2005.
It would use return on equity as a guiding factor to select the companies to invest into. The fund intends to invest in companies having three year average ROE at least twice the annualised yield for five year Government of India securities as on the close of the previous financial year. The other criteria that the fund would apply is based upon the market capitalisation of the company, which should be at least Rs 100 crore.
Way back in 1994, GIC Mutual Fund had offered a performance-linked fee structure under its GIC Growth Plus II Fund. As per the offer document, it would not charge any management fee for the year in which it earns less than 14 per cent returns.
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