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. This study grades the experiences of mutual fund investors across 26 markets, breaks down the key factors contributing to global fee trends and provides a detailed look at the trends within each specific market.
The current report is the 6th edition of the biennial GIE report.
For this edition, Morningstar is publishing each of the evaluation categories as independent chapters:
- Fees and Expenses
- Regulation and Taxation
- Disclosures
- Sales
Regulation and Taxation has recently been released. It evaluates the regulatory and tax frameworks that mutual fund investors face. The remaining two chapters will be produced later in 2020-21.
How India fared
This second chapter of GIE, grades the experiences of mutual fund investors in 26 countries across North America, Europe, Asia, and Africa.
India received an average grade, India matches global best practices in many areas of regulation. The tax system provides incentives for fund investing, including the deferral of capital gains taxes until units are sold. Although the a lack of mandated saving via NPS for nonstate employees did hold back the grade.
Overall, regulation of the India's mutual fund industry has been proactive and effective. Regulations such as changes to total expense ratio slabs, bans on up-front commissions, fund categorization and tweaks to fund investment norms have been effective.
Similar to most other countries around the world, India doesn’t have an explicit Investor compensation scheme for mutual fund investors in case of a fund company wrongdoing,” says Kaustubh Belapurkar, director of fund research at Morningstar India. “But the regulator – SEBI, has been very proactive in acting in investors’ best interests by monitoring activities of asset managers and enforcing fines or ordering investor compensation on any instances of wrongdoing or conflict of interest. They also have a well defined investor grievance redressal mechanism.
Access the entire report here.
Andy Pettit, one of the authors of the study, made these global observations.
- In the decade following the global financial crisis (GFC), market regulation focused on protecting investors has generally continued to provide robust fund markets that help individuals invest safely for their future. An interesting observation has been that international policymakers have been shifting their focus onto environmental, social, and governance (ESG) factors. This trend was one of the top findings from the Regulation and Taxation chapter of the latest Global Investor Experience Study, which evaluates the environment for mutual fund investors in markets around the world.
- The highest overall scores went to The Netherlands, Sweden, and the United Kingdom, while the lowest went to Australia, Canada, China, Japan, New Zealand, and the United States. None of the markets we evaluated yielded a bottom grade, as they all achieve basic protections for investors.
- While the study was conducted prior to the coronavirus pandemic, it is especially relevant given the current situation. A strong regulatory environment can give investors one less thing to worry about and provide them with confidence that the financial markets are continuing to protect their interests. Since the outbreak, we’ve seen governments and regulators take a wide variety of different approaches to help maintain market stability, assist businesses, and protect investors.
- The global mutual fund market has strong regulation that generally protects investors. But markets vary in their policies to incentivise people to invest. Some markets levy no taxes on investment income or gains and others provide tax wrappers that enable people to invest meaningful amounts that can grow tax-free. The most progressive markets, such as Australia and the UK, have begun automatically enrolling workers in defined-contribution retirement systems.
- Market regulation of fund operations and distribution is an area where we see wide variation in practices. Issues that have important, real-world implications for ordinary investors include: the allowance of soft commissions, the transparency of third-party research costs incurred by funds, and paying distribution costs out of fund assets. We made some enhancements to the methodology to place a stronger emphasis on these issues, which contributed to changes in some market ranks. Notably, China, Hong Kong, Japan, and Singapore’s rankings declined from the last edition of the study.
Market regulation and taxation are significant, but not the only dominant factors shaping global investor experiences. Other factors, such as competition and economies of scale, also play a large part. For instance, even though Australia and the United States scored relatively low in terms of regulation and taxation, they were top performers in the Fees and Expenses chapter of the Global Investor Experience Study, alongside the Netherlands.
