Fund houses charge expense ratio using a slab-based formula
In equity mutual funds (MFs), is there a way to know how dividends from stocks are used?
--Remy Sakhija
Fund managers of equity MFs invest by buying shares of companies from the stock market. These companies could, periodically, declare dividends for share holders, i.e. distribute a portion of the profits made by the company. This money comes into the cash account of the fund. This same account also holds the money accrued when the fund manager sells some shares from the portfolio. The money in this account is available for the fund manager to invest in the market as and when opportunities arise. The fund manager could also decide to distribute part of this surplus cash as dividends (if there is a dividend option in the scheme) to the unit holders of the fund. So, in summary, the dividends from stock holdings are either held as cash or re-invested in the market in the case of growth schemes, and may, additionally, be distributed as dividends in the case of dividend schemes. If it is either held in cash or re-invested, the dividends received will cause the fund's asset size to increase and consequently the fund's net asset value (NAV) will go up.
How does a fund house fix its expense ratio?
--Dipen Bhullar
The "total expense ratio" (TER) of an MF is the sum of all the fees levied by the fund house for managing investors' monies in a scheme. TER is expressed as an annual percentage of the corpus in the scheme and is deducted from the NAV on a daily basis. It varies from scheme to scheme within a fund house with equity funds typically sporting higher TER than debt funds, which, in turn, are higher than liquid and money market funds. This fee takes care of fund management charges, record-keeping charges, marketing and distribution costs, and infrastructure expenses, apart from the MF's profits.
The Securities and Exchange Board of India (Sebi) has set up a slab-based formula for arriving at the maximum TER that a scheme can charge its customers--2.5% for the first Rs.100 crore, 2.25% for the next Rs.300 crore, 2% for the subsequent Rs.300 crore and 1.75% for the balance. Sebi has also allowed fund houses to charge up to 0.30% more if 30% of their inflows (at least) are from cities and towns outside of the Top 15 locations in the country. The fund houses are free to charge any fee within this maximum limit.
Barring a few, most fund houses charge as much as they are allowed to charge based on the formula, especially with equity funds
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--Remy Sakhija
Fund managers of equity MFs invest by buying shares of companies from the stock market. These companies could, periodically, declare dividends for share holders, i.e. distribute a portion of the profits made by the company. This money comes into the cash account of the fund. This same account also holds the money accrued when the fund manager sells some shares from the portfolio. The money in this account is available for the fund manager to invest in the market as and when opportunities arise. The fund manager could also decide to distribute part of this surplus cash as dividends (if there is a dividend option in the scheme) to the unit holders of the fund. So, in summary, the dividends from stock holdings are either held as cash or re-invested in the market in the case of growth schemes, and may, additionally, be distributed as dividends in the case of dividend schemes. If it is either held in cash or re-invested, the dividends received will cause the fund's asset size to increase and consequently the fund's net asset value (NAV) will go up.
How does a fund house fix its expense ratio?
--Dipen Bhullar
The "total expense ratio" (TER) of an MF is the sum of all the fees levied by the fund house for managing investors' monies in a scheme. TER is expressed as an annual percentage of the corpus in the scheme and is deducted from the NAV on a daily basis. It varies from scheme to scheme within a fund house with equity funds typically sporting higher TER than debt funds, which, in turn, are higher than liquid and money market funds. This fee takes care of fund management charges, record-keeping charges, marketing and distribution costs, and infrastructure expenses, apart from the MF's profits.
The Securities and Exchange Board of India (Sebi) has set up a slab-based formula for arriving at the maximum TER that a scheme can charge its customers--2.5% for the first Rs.100 crore, 2.25% for the next Rs.300 crore, 2% for the subsequent Rs.300 crore and 1.75% for the balance. Sebi has also allowed fund houses to charge up to 0.30% more if 30% of their inflows (at least) are from cities and towns outside of the Top 15 locations in the country. The fund houses are free to charge any fee within this maximum limit.
Barring a few, most fund houses charge as much as they are allowed to charge based on the formula, especially with equity funds
Livemint
Sent from BlackBerry(R) on Airtel
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