618 from direct equity mutual fund schemes (which do not have the distribution commission), 62% increased its total expenditure ratio from September 2024 – when indices began to fall – by March 2025, according to A. Mint Analysis. The analysis showed that 21% of the schemes reduced their expenditure ratio and 17% maintained the same rate.
Total expenditure ratio (TER) is a measure of managing and operation of a mutual fund and is paid by those investing in it. Typically, asset managers increase the decline in property of a scheme under a decline in management.
Although, Mint The analysis found that out of 381 direct equity schemes that increased in TER, property of 284 schemes, or 74%, actually increased.
The market regulator has determined a slab-based structure for the Ter, where the maximum fee can be charged depends on the size of the assets of the scheme.
If an equity mutual fund has assets 500 crores, maximum terms permission is 2.25%. If property grows 750 crores, maximum permissible TER falls to 2%. As the size of the scheme increases and crosses the high threshold, the terirs should be reduced to suit the slab structure.
Although there is a grip. There are no rules from the Securities and Exchange Board of India (SEBI) that specify when the mutual fund houses can increase the terrain.
Factors’ work
Shravan Shetty, managing partner of primary partners, said, “If the AMC is not fulfilling profitability goals or costs, they can increase the terrain and if everyone is in the same boat, other AMCs can also increase it,” said Shravan Shetty, the managing partner of the primary partners.
As long as the increase in the terrain is within the SEBI criteria, it’s fine, Shetty said. He said that expenditure ratio can also be determined on the basis of profit and loss, quantity beliefs and development, and if the beliefs are not met, AMC can adjust TER.
The maximum term can be charged for a plan based on the mutual fund regulations AUM. However, the charged actual terrain can be a function of factors such as AUM, expenses, business or commercial ideas and others, Nehal Sampat, Price Waterhouse and Company LLP, a partner Nehal Sampat.
He said that there is no restriction on the periodicity to modify the tears – just that investors would have to communicate changes by SMS or email.
A fund manager said on the condition of anonymity, “Even though equity schemes extended their terms despite an increase in AUM, it can be due to a technical adjustment as AMCS may fears an outbreak or redemption.” The person said that the fund houses can also expect that there will be a slight change in the market or there will be further decline, which will make it more prudent to plan conservatively rather than a hasty adjustment.
According to Akhil Chaturvedi, Executive Director and Chief Business Officer at Motelle Oswal AMC, any increase or decrease in TER is a comprehensive function of three elements – AUM movements, operational expenses and distribution commissions – and it is based on the size of the scheme and the flow.
In some cases, fund manager may play catch-ups on tors.
“One possibility that the rules allow AMC to charge up to 2.25% 500 million AUMs, but as a fund manager, I chose only 2% charging, “A compliance of AMC said.” Now that I have a headroom, I can avail the additional 0.25% that I was not charging earlier. ,
The situation is opposite to regular mutual fund schemes, which charge the distribution commission. In regular equity schemes, only 9.5% increased their terms, while 51% retained TER and 39% reduced TER from September to March.
A part of TER for regular MF schemes goes to AMC as fees, and the remaining is paid to the distributor.
More AMCs have increased direct ters and reduced more AMCs regularly, the reason that is brokerage. If the AMC has a direct terrain of 1% and a regular terror of 3%, then the difference – 2% – brokerage.
In terms of regular hybrid schemes, the average TER in March was 1.74% in March 2024 compared to 1.75%. For regular loan schemes, the average TER in March was 0.69% compared to 0.7% in September 2024.
Escape route
SEBI suggested in a counseling paper in 2023 that the terra slab should be at AMC level and not at the plan level. The larger the plan, the less as the terrain is considered to be the cost capacity.
SEBI said in the counseling that the cost is not very high when AUM increases. For example, fund managers and research teams are usually the same, even if the fund becomes bigger.
Another reason mentioned in the draft paper is that when an AMC launchs a new fund, it starts with a small AUM and is allowed to charge high terjals. It creates a flaws where AMC pushes these new schemes with high commissions for distributors. As a result, investors can be taken out of old, large and inexpensive plans.
SEBI postponed his plan to rationalize Ter. Former chairperson Madbi Puri Buch said that it would come with another counseling paper on the matter.
