Equity mutual funds: India 3rd least expensive

India is the third least expensive to own equity mutual funds, a Federation of Independent Financial Advisors (FIFA) study of 25 countries has shown. The findings come at a time when there is pressure from the regulator on fund houses to reduce expense ratios — the portion of assets they take back as service charge — to encourage more people to invest in mutual funds.

India’s equity expense ratio of 1.88 per cent was behind Norway’s 1.80 per cent and Japan’s 1.87 per cent. The average total cost for equity funds before taxes across all countries was 2.15 per cent. The UK was the most expensive at 2.83 per cent. India was the least expensive among developing nations where the mutual fund industry is at a nascent stage.

As per FIFA, the findings were based on March 2017 data. In fact, ownership expense in India would have reduced further as the local regulator has since mandated a reduction in total expense ratio.


The Morningstar Global Fund Investor Experience report 2017 had ranked India the 10th least expensive country out of 25 reviewed. Morningstar classified India in the “below average” category in the fees and expenses scorecard. FIFA believes this report makes unfair comparisons. “Globally, different practices are followed with respect to fees and expenses charged by mutual funds,” FIFA chairman Dhruv Mehta said.

According to FIFA, one of the difficulties in comparing annual expense ratios across countries has been development of unbundled fee arrangements, whereby an adviser is not paid sales commission by the fund house in the traditional model but is paid a separate fee by the investor.

“When taken, this action has the effect of lowering official fund expense ratios because funds no longer need to collect money from investors to make adviser payments. It also has the effect of complicating expense ratio comparisons, because an investor in a lower cost fund may pay an additional fee to an adviser which is not considered in Morningstar calculations,” the FIFA report said.