Problems of MFs and its solution by Indian Government

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase security. Company hired fund managers to choose the right portfolio of securities, so that the risk factor should be decreased and return should be increased in the future. Mutual fund companies feel restricted because of the strict policies of the government .As government also want more transparency for the investors.

Now Indian Mutual Fund companies demands some most required things from the government to make their products more lucrative.

These demands are as follows :-

  • 25bps increase in total expenses.
  • Greater flexibility in the use of expenses levied on schemes.
  • Shift the incidence of service tax on to the investors.
  • Permission to MFs to launch pension plans
  • Extension of Rajiv Gandhi equity saving
  • Distributers want entry load to be brought back.

Government may soon take the first and second steps.These steps are taken to strengthen the distribution network and to give flexibility to the Mutual Fund companies to manage the total expense.Expense ratio is the fee charged by a fund house to manage and operate the fund.The charges includes, management fees , administration fees and other operating costs.

As at present , MFs  are allowed to charge up to 2.25% as expense ratio and in which fund houses are allowed to take only 1% as asset management charge, the remaining 1.25% has to meet recurring expenses.

It is expected that after giving the flexibility.

It is expected that if the expense ratio will be increased from 2.25% to 2.50% then it will help the industry to boost. And Greater flexibility in the expense ratio will help the  to give more commission to the brokers who leave the industry in absence of right brokerage.