Indian mutual fund investors pay an average cost as an expense ratio compared to global funds. In a biennial study by Morningstar, it was found that India’s fees and expenses rating remains consistent at “average” for mutual fund investors. India’s fees and expenses score remains constant at the average, the same as in the last study. In the 2019 study, India’s rating rose to Average from Below Average in 2017.
These are in line with the findings of the Global Investor Experience Study recently launched by Morningstar. The Global Investor Experience Study is structured around three “chapters”:
- Fees and Expenses
- Regulations and taxation
Some key findings from the study for India
India continues to enjoy higher quality than several developed European and Asian markets. Investor-friendly regulations, such as a ban on upfront fees, upfront commissions, and the overall reduction in total expense ratios (TERs) capping investment fees, contribute positively to the country’s rating.
The Average rating is determined by the combination of a relatively lower, globally competitive asset-weighted median of 0.36% for fixed income funds, which reflects the traction of non-commission equity classes , and relatively higher asset-weighted medians of 1.74% and 1.78%. for allocation and equity funds, respectively.
Median asset-weighted fees for fixed income funds remain among the lowest in the world.
India is one of four countries (Australia, the Netherlands and the UK being the others) where upfront fees (front fees) are banned, while the use of upfront fees remains high in parts of Europe and Asia.
India’s relatively higher asset-weighted median TERs in Indian equity funds and allocation funds are primarily driven by majority investors preferring the services of mutual fund dealers and investing therefore via a plan incorporating commissions.
India largely follows the structure of bundled expense ratios with commissions embedded in fund expense ratios. Investors do not incur additional costs such as advisory fees, platform fees or entry fees when purchasing distributor share classes.
Assets in unbundled share classes (direct plans) are gradually increasing, with investors benefiting from lower expense ratios compared to distributor share classes. The Direct Plans also have low investment minimums equivalent to those of the Distributor Share Class, thus making the Direct Plans accessible to all investors. Expense ratios for direct share classes are significantly lower and comparable to global share classes with no advisory fees.