A few days ago, Morningstar, Inc. released its biannual Global Fund Investor Experience Report, which assesses the experiences of mutual fund investors in 25 countries across North America, Europe, Asia, and Africa.
Morningstar researchers identified Korea and the United States as the most investor-friendly markets and China the least investor-friendly market. India scored a grade of C+ in the report.
Morningstar evaluated countries in four categories that are weighted to calculate the overall grade:
- Regulation and Taxation
- Disclosure
- Fees and Expenses
- Sales and Media
Morningstar researchers generally favour active fund regulation; a low investor tax burden; more disclosure; lower fund fees; a varied fund distribution system; and local news media that helps to educate investors about their choices. Morningstar assigned countries a letter grade for each of the four categories and used the underlying scores to produce an overall country grade. The analysis was based on information from publicly available sources, Morningstar data, and Morningstar experts located in the company’s offices around the world.
Highlights of India’s grade include:
- With an overall grade of C+, India has a mix of outstanding practices and others that fail to meet global standards, relative to other markets evaluated in this report A particularly notable feature of the Indian fund market is the lack of any asset-based commissions. India also prohibits funds from charging performance fees, which is commendable and atypical among the countries in the survey. However, Indian funds still have average-to-expensive total expense ratios overall for equity and allocation funds.
- In the 'Regulation and Taxation' category, India receives a B- grade. India is one of only a few countries in the report that continues to have capital controls, which limits investors' ability to invest in foreign securities.
- Since 2014, the market regulator in India requires that asset management companies invest 1 percent—subject to a maximum of Rs.5 million—of all seed capital raised at the fund’s inception during the life of the fund. Morningstar considers the requirement a positive step as it aligns the interests of the fund company with that of investors.
- In the 'Disclosure' category, India receives a C+ grade. India requires disclosure of full fund portfolio holdings monthly instead of on a semiannual basis typical of other markets evaluated in the report. India is one of only two countries that hold this distinction. Investment strategies and risks found in fund documents, however, are typically generic and provide little useful information.
Overall country grades for 2015
Key findings of the 2015 report