Higher Expense ratio in Index Funds

Personal finance
1

Why are so many Asset Management Companies (AMCs) charging an expense ratio of 0.3% or higher for various broad-based index funds and strategy index funds? After factoring in tracking errors, the effective cost to investors often exceeds 0.5%. There should be regulations to control these Total Expense Ratio (TER) charges. What are your thoughts on this?

If AMCs continue to charge such high expense ratios, it undermines the purpose of attracting investors to these funds. In my opinion, the expense ratio for all index funds should be capped at 0.1% to ensure they remain an attractive and cost-effective investment option for everyone.

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2

There is. SEBI controls expense ratios.

0.1% is too low but still there are AMCs offering index funds at 0.1%, just to attract customers

3

Unfortunately those AMC does not have AUM and others who charge 0.3+ who has max investors. I believe 0.1 is not too low thinking from future’s perspective as more investor will join and there are not much things that they have to perform.

4

You can’t have best of both worlds. Pick a new fund with low expense ratio or stick to a more expensive but trusted one

5

Why dont you consider ETF if you have a demat account. SBI ETF Nifty 50 charge 0.04 as expense ratio.

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6

It is not just about Nifty 50 fund. Nifty Midcap 150, Nifty next 50 Nifty 100 all these and other same category index fund charges at least 0.3% which seems higher to me.

7

i mean 0.3% of your booked profit is high? i’m surprised… you should be ranting about the 15% tax rather :grinning:

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8

No, not a % of the profits.

AFAIK, expense ratios are expreseed as a percentage of the investment.
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9

Cost matters, these things compound too and difference after few decades would not be insignificant.

Vanguard seems to have expense ratio around 0.1%, so that is a good achievable number once there is scale.

10

thank you! my bad… its on the investment. but i would still rant about high taxes first :rofl:

11

It’s not about ranting or complaining. It is about how AMCs are doing the business and taking cut from our money. I understand high tax is also issue but this should be also concern for investors who are putting money for longer term and giving charge to AMC manager for not doing many things.

12

i see… but in case of index funds, why not switch to a different amc? like hdfc nifty 50 is 0.2% while navi is 0.06% for the same fund. since this is index, we can plot expense vs tracking error for different amcs and get the optimized one?

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It is not just about Nifty 50 Index. Nifty Midcap 150, Nifty next 50 Nifty 100 all these and other same category index fund charges at least 0.3% which seems higher to me.

16

not all funds in the categories you mentioned have an expense ratio of 0.3% or higher. in fact, out of 13 different nifty 50 index funds, only one exceeds 0.3% (0.7% for taurus). so, 92% of nifty 50 index funds have an expense ratio below 0.3%. my point is, why not gather data on the expense ratio and tracking error of the index funds you’re considering, then plot and compare them? this is a one-time effort. for example, edelweiss has 0.05%. next, i would pick five such funds and check which has the minimum tracking error.

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I appreciate your efforts for Nifty 50 TER. As I already mentioned I am not talking about Nifty 50. Please check Nifty next 50, Midcap 150, Smallcap, Microcap 200 Momentum 30 etc funds. all these are also part of Index funds.

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yup, no idea why amcs charge 0.3% or higher in many index funds.