Morningstar launched the Global Investor Experience study (GIE) in 2009 to encourage a dialogue about global best practices for mutual funds from the perspective of fund shareholders.
We've produced the study every two years, with 2019 marking the sixth edition.
We've structured previous editions of GIE around four 'chapters':
- Fees and Expenses
- Regulation and Taxation
- Disclosure
- Sales
To provide greater focus, for this edition we are publishing each chapter of the study independently, starting with this Fees and Expenses chapter.
Here are a few key findings of the study with regards to India:
- India’s Fees and Expenses grade improves to Average in this study, from Below Average in the 2017 study, earning a higher grade than several developed European and Asian markets.
India had been among the most expensive geographies when it comes to expense ratios, but investor-friendly regulations, like the ban on front loads and the more recent ban by SEBI on up-front commissions and overall reduction in Total Expense Ratios (TERs) capping investment charges, contribute to India’s improved grade.
- The Average grade is driven by the combination of a globally competitive and relatively lower asset-weighted median of 0.54% for fixed-income funds, which reflects traction in commission-free share classes, and relatively higher asset-weighted medians of 1.78% and 1.93% for allocation and equity funds, respectively.
- Taken separately, the medians considering only distributor plans come in higher than the overall medians, while the medians for direct plans are more competitive globally.
- With the recent expense cap reductions, India has seen a meaningful decrease in asset-weighted median Total Expense Ratios (TERs) in this study. Asset-weighted median expense ratios for domestic and available-for-sale funds fell in a majority of the 26 markets surveyed since the 2017 study. The Netherlands saw the largest decline, followed by India and Canada.
- India is one of four countries (Australia, the Netherlands and the UK being the others), where initial charges (front loads) are banned, while usage of initial charges remains high in some parts of Europe and Asia.
- India’s relatively higher asset-weighted medians TERs in Indian equity funds and allocation funds are primarily driven by the fact that majority investors prefer the services of mutual fund distributors and thus invest through a commission-embedded plan.
- As such, India largely follows the bundled expense ratio structure with commissions embedded into the expense ratios of funds. Investors do not incur any additional costs such as advisory fees, platform fees, or front-end loads when purchasing distributor share classes.
- However, unbundled share classes (Direct plans) assets are rising gradually as investors benefit from the lower expense ratios compared with distributor share classes. Direct plans also have low investment minimums equivalent to those of the distributor share class, thus making direct plans accessible to all investors.
Download the report here.