Suits & Sayings: Hidden Costs

When rising costs become difficult to defend, one solution is to make them slightly harder to spot. That, at least, seems to be the playbook at parts of the mutual fund industry. Sebi’s rules require all expenses to be reflected in the Total Expense Ratio (TER), pushing up the headline cost of several schemes, particularly those with high portfolio churn. The timing is awkward. Investors and distributors have begun asking uncomfortable questions about fatter expense ratios at a time when returns have been underwhelming and churn remains high, especially in arbitrage funds. We hear at least two listed fund houses — one backed by a large private-sector bank and another by a diversified conglomerate — have quietly taken to highlighting only the Base Expense Ratio (BER) in their factsheets. The missing bits — brokerage, transaction charges and statutory levies — are relegated to the fine print. A few others, we’re told, prominently display only the BER and politely direct investors to their websites if they wish to discover the full TER. As always, the smallest print often carries the biggest numbers.

(For more on our weekly roundup of wackiest whispers and murmurs in corporate corridors & policy parlours, pick up today's edition of The Economic Times newspaper)