India’s microfinance industry scores ‘average’ on the fee and expense scorecard

The 39 trillion rupee domestic mutual fund (MF) industry posted “average” on Morningstar Inc’s fee and expense scorecard – indicating more room to lower the cost of investing in MFs.

In 2019, India’s score improved from ‘below average’ to ‘average’, thanks to investor-friendly regulations introduced by the Securities and Exchange Board of India, such as a ban on entry loads, upfront commissions and general discounting. In it – they are called total expense ratios (TERs).

Australia, the Netherlands, and the United States are currently in the first quadrant. Morningstar study says India’s TER rate is higher as a large number of investors still prefer the services of MF distributors. Meanwhile, countries with better scores have a commission-free model, but investors pay a separate fee for advice.

As such, India largely follows the aggregate expense ratio structure with commissions embedded in funds expense ratios. Investors do not incur any additional costs such as advisory fees, platform fees, or front-end loads when purchasing distributor stock classes,” says Morningstar.

Experts said that with the growing popularity of “straightforward” plans and a shift towards distribution and advisory activities, it could help India improve its ranking in the future.

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