Short-changing mutual fund investors

A study by market regulator Securities & Exchange Board of India (SEBI) has revealed that mutual fund investors have been charged unfair fees of around Rs 1,500 crore by the asset management companies (AMCs) during the last five years. A SEBI committee has recommended to the SEBI board that the excess charges collected by AMCs be credited back to the respective schemes.

The SEBI committee found that the AMCs took unfair advantage of SEBI’s concession to the AMCs to charge an additional 20 bps in expense ratio in lieu of charging exit load in open-ended schemes. It was found that some of the AMCs took this concession as a blanket permission to impose 20 bps extra charge on all schemes, including close-ended schemes that did not have any exit load in the first place! Also, fund houses that did not levy any exit load on their schemes had started charging 20 bps in expense ratio, thereby making extra money. The SEBI committee estimated that by December 2017, the AMCs had collected Rs 1,600-1,700 crore in the form of 20 bps extra expense ratio, out of which an amount of only Rs 160-170 crore was credited back into the MF schemes and, as a result, the AMC had pocketed about Rs 1,500 crore of extra charges in the guise of the enhanced 20 bps expense ratio.

Considering that mutual fund schemes have caught the fancy of retail investors, such misdemeanour on the part of some of the AMCs could shake the confidence of investors and drive them away from mutual funds. Hence, it is better that mutual fund houses mend their ways and stop short-changing the investors for their own good. Because if retail investors turn their backs on MFs due to such revelations, it might spell doom for the mutual fund industry.