Are Indian MFs cheapest globally ?

Securities and Exchange Board of India (SEBI) is mulling to reduce the permitted expense ratios for mutual fund schemes. If that happens, the Foundation of Independent Financial Advisors (Fifa) believes Indian mutual funds will be among the least expensive globally.

According to a study done by Fifa the expense ratio for Indian mutual funds comes to about 1.81 per cent excluding the service tax of 14.5 per cent (now 15 per cent). With these expense ratio figures India will be the fifth least expensive in the list of 25 countries reviewed by Morningstar in previous year. 

Morningstar study suggests the expense ratio to be at 2.65 per cent including service tax. 

The Fifa report further emphasises the fact that the long term returns post expenses earned by investors are superior to that earned by investors in other countries. Study at Fifa which took the scheme-wise average asset under management for march, and worked out the weighted average expense ratios for all schemes in the equity-oriented funds category, suggest that the Total Expense Ratio (TER) as a percentage to the returns earned would be the best in India.

TER is a measure of the total cost of a fund to the investor and includes various fees and other expenses. TER is calculated by dividing the total annual cost by the fund's total assets (average)  and is presented in percentage term. TER is normally high for funds with lower Assets Under Management (AUM) and TER goes down with increasing AUM. 

SEBI is likely to effect a lower cap on the TER charged by mutual funds. Previous year Sumit Bose committee report had recommended to reduce the expense ratio to make it less expensive for investors to invest in mutual funds.