As the revised slabs in respect of mutual funds come into effect with the onset of new financial year 2019-20, you will see the cost of regular funds fall sharply. But herein it is to be noted that in case of direct equity plans, the cost or total expense ratio cut has only been of a modest order.
The cut in TER in case of regular funds has been in absolute terms and for the direct plans it is higher in comparison in percentage terms.
Direct plans are different from regular plans as they do not involve middlemen i.e. salesmen who charges an upfront commission and so direct plans are rather cheaper.
As per the data it has been seen that TER for regular plans of the leading 10 largest equity funds declined by 21 basis points on an average. For the direct plans, TER fell by 14 basis points.
Further the SEBI’s rule state that the two type of mutual fund should have a difference in TER which should be reflective of commission charged under a regular plan. And the decrease in TER between the direct and regular plan indicates that across most of the schemes, distributor commission has got down, except for a few schemes.
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