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Mutual Fund distribution fee peaks to 55% of expense ratio

December 28, 2022

Mutual Fund distribution fee peaks to 55% of expense ratio
The distribution commission paid by mutual funds has increased to 55 per cent of the expense ratio against 45 per cent logged in last three years and this has shrunk mutual funds profit.

After the ban on upfront commissions, distributor profitability has recovered at a compounded annual growth rate of 30 per cent since FY’19 against 15 per cent for asset management companies, said a Kotak Institutional Equities Research study on back of recent SEBI decision to review fees charged on investors and expenses incurred by mutual funds.

Market regulator SEBI on Friday said it has initiated a study on regulatory provisions on fees and expenses in mutual fund schemes market compared to the existing market practices.

The study will endeavour to provide data as input for policy formulations. SEBI said its policies seek to balance the need for facilitating financial inclusion, encouraging new participants, leveraging economies of scale, encouraging adoption of technology, discouraging cross-subsidisation across schemes, closing arbitrage opportunities and curbing malpractices.

“While it is hard to comprehend what exactly induced the SEBI review and its conclusion, we expect a greater focus on and scrutiny of distribution payouts as against another round of sweeping overall expense ratios,” said Abhijeet Sakhare, Vice President, Kotak Institutional Equity Research.

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