Indian Mutual Fund – A Study on Expense Ratios of Equity Schemes Under Direct and Regular Investment Options

Abstract

Mutual fund investors can invest directly without involvement of intermediaries under direct options where the expenses ratios are supposed to be lower than the regular options (with intermediaries) effective from January 1, 2013. The present study is to find out the difference in asset weighted annualized expenses ratio between direct option and regular option of select 61 equity schemes and the difference between their performances over 1,3,5 years period as on April 12, 2019. It is observed that the asset weighted mean difference in annualized expense ratios between direct and regular option of 61 equity schemes for period 2018-2019 was 0.94%. Among equity categories, the differences for large cap, midcap and small cap categories understudy are 0.82%, 1.02% and 1.16% respectively. The difference in annualized performances of direct and regular option measured as average of differences in compounded annualized growth rate of Net Asset Value (NAV) of mutual fund schemes are 1.05%, 1.18% and 1.16% per annum for 1 year, 3 year and 5 year periods respectively. The expense ratios across mutual fund categories are gradually coming down since introduction of various measures by Securities Exchange Board of India since the year 2013.