Regular Plan investors benefited more from expense ratio cuts

There have been two regulatory changes with respect to mutual fund expense ratios in last six months. A quick look at how expense ratios have changed due to these regulatory changes since Sep 2018 in equity funds.

Analysing 137 equity mutual funds across largecap, large & midcap, multicap, midcap and smallcap categories, here are some findings.

  • Regular plans have seen higher drop in expense ratio compared to direct plans.
  • As expected only Funds with large AUMs have seen material drop in expense ratio.
  • The difference between direct and regular plan expense ratio has narrowed by only ~8 to 5 bps. This means brokerage has been drastically reduced in larger schemes.
  • Schemes with smaller AUM have not seen any material changes in expense ratio.
  • Ultimately regular plan investors have benefited more than direct plan investors at the cost of cut in distributor’s brokerage.
  • AMCs have not taken much hit due to change in expense ratio
  • Claims that AUM flows have been affected due to cut is expense ratio/drop in brokerage is untrue. Drop in flows could be more due to market environment.

Quick look at some numbers:

Average change in expense ratios across 137 equity funds: The drop in expense ratio in regular plans have been higher than in direct plans.

  Direct Plan Regular Plan
Average drop in expense ratio 0.03% 0.05%
No. of funds where expense ratio has increased 39 36
No. of funds where expense ratio has decreased 63 79

Average change in expense ratio across different sized funds:

In funds with more than Rs. 10,000 cr AUM, regular plans have seen higher drop in expense ratio. The average difference between direct and regular plan expense ratio has narrowed.

Average Drop in Expense Ratio of Direct Plans 0.08%
Average Drop in Expense Ratio of Regular Plans 0.19%
Average Difference Between Direct and Regular – Sep 2018 0.87%
Average Difference Between Direct and Regular – April 2019 0.75%

Even in funds with AUM between Rs. 5,000 cr to Rs. 10,000 cr regular plans have seen higher drop in expense ratio. Here also the average difference between direct and regular plan expense ratio has narrowed.

Average Drop in Expense Ratio of Direct Plans 0.02%
Average Drop in Expense Ratio of Regular Plans 0.05%
Average Difference Between Direct and Regular – Sep 2018 0.92%
Average Difference Between Direct and Regular – April 2019 0.86%

Average change in expense ratio of funds with AUM less than 5,000 crore has been insignificant. Both direct and regular plan expense ratios have seen a drop of just between  0.03% to 0.01%.

Expense ratio change in top 10 largest funds:

Funds  

Expense Ratio

AUM Apr-19 Sep-18 Change
Kotak Standard Multicap Fund(G)  24,297 1.80 2.12 -0.32
Kotak Standard Multicap Fund(G)-Direct Plan  24,297 0.73 0.93 -0.20
HDFC Equity Fund(G)-Direct Plan  22,376 1.23 1.51 -0.28
HDFC Equity Fund(G)  22,376 1.79 2.06 -0.27
HDFC Mid-Cap Opportunities Fund(G)  22,244 1.88 2.17 -0.29
HDFC Mid-Cap Opportunities Fund(G)-Direct Plan  22,244 1.06 1.22 -0.16
SBI BlueChip Fund-Reg(G)  22,217 1.69 1.82 -0.13
SBI BlueChip Fund(G)-Direct Plan  22,217 1.09 1.07 0.02
Aditya Birla SL Frontline Equity Fund(G)  22,023 2.00 2.25 -0.25
Aditya Birla SL Frontline Equity Fund(G)-Direct Plan  22,023 1.12 1.15 -0.03
ICICI Pru Bluechip Fund(G)  21,846 1.85 2.28 -0.43
ICICI Pru Bluechip Fund(G)-Direct Plan  21,846 1.21 1.31 -0.10
HDFC Top 100 Fund(G)  16,705 1.85 2.08 -0.23
HDFC Top 100 Fund(G)-Direct Plan  16,705 1.33 1.50 -0.17
Motilal Oswal Multicap 35 Fund(G)-Direct Plan  13,247 1.04 1.04 0.00
Motilal Oswal Multicap 35 Fund-Reg(G)  13,247 1.95 1.95 0.00
Reliance Large Cap Fund(G)  12,772 1.94 2.05 -0.11
Reliance Large Cap Fund(G)-Direct Plan  12,772 1.22 1.04 0.18
Mirae Asset Large Cap Fund(G)-Direct Plan  12,315 0.65 0.96 -0.31
Mirae Asset Large Cap Fund-Reg(G)  12,315 1.78 2.02 -0.24

Top 10 Funds that have seen highest increase in expense ratio: (Funds with more than Rs. 1,000 cr AUM considered for this)

Funds  

Expense Ratio

AUM Apr-19 Sep-18 Change
DSP Equity Fund-Reg(G)  2,581 2.36 2.00 0.36
Principal Emerging Bluechip Fund(G)-Direct Plan  2,190 0.87 0.52 0.35
Axis Midcap Fund(G)  2,282 2.28 1.95 0.33
Kotak Bluechip Fund(G)  1,406 2.46 2.21 0.25
Axis Bluechip Fund(G)  5,144 2.11 1.86 0.25
Mirae Asset Emerging Bluechip(G)-Direct Plan  7,271 0.80 0.60 0.20
Reliance Large Cap Fund(G)-Direct Plan  12,772 1.22 1.04 0.18
Canara Rob Equity Diver Fund-Reg(G)  1,160 2.53 2.39 0.14
IDFC Core Equity Fund(G)-Direct Plan  2,954 0.68 0.57 0.11
SBI Small Cap Fund(G)-Direct Plan  1,992 1.26 1.15 0.11

Top 10 Funds that have seen highest drop in expense ratio: (Funds with more than Rs. 1,000 cr AUM considered for this)

Funds   Expense Ratio
AUM Apr-19 Sep-18 Change
ICICI Pru Bluechip Fund(G)  21,846 1.85 2.28 -0.43
Kotak Equity Opp Fund(G)  2,536 2.03 2.37 -0.34
Sundaram Mid Cap Fund(G)  6,029 1.96 2.30 -0.34
Kotak Standard Multicap Fund(G)  24,297 1.80 2.12 -0.32
Mirae Asset Large Cap Fund(G)-Direct Plan  12,315 0.65 0.96 -0.31
HDFC Mid-Cap Opportunities Fund(G)  22,244 1.88 2.17 -0.29
HDFC Equity Fund(G)-Direct Plan  22,376 1.23 1.51 -0.28
HDFC Equity Fund(G)  22,376 1.79 2.06 -0.27
Aditya Birla SL Frontline Equity Fund(G)  22,023 2.00 2.25 -0.25
Mirae Asset Large Cap Fund-Reg(G)  12,315 1.78 2.02 -0.24
HDFC Top 100 Fund(G)  16,705 1.85 2.08 -0.23
IDFC Multi Cap Fund(G)-Direct Plan  5,521 1.25 1.46 -0.21
All expense ratios are as on month end.

Hope this analysis was helpful.

Happy Investing! 

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One thought on “Regular Plan investors benefited more from expense ratio cuts

  1. The top 10 highest increase or decrease should be based on % movement and not based on value… Principal Emerging Bluechip Fund(G)-Direct Plan increased by 67%, that is the highest

    Liked by 1 person

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