The Hindu Business Line : ULIPs' expense ratio cut may not impact MFs

THE mutual fund industry does not expect a fallout from the drop in annual management fees charged by unit linked insurance policies. A return on a mutual fund investment, and not the fees charged, was an investor's chief concern was the general view.

Recently, HDFC Standard Life Insurance lowered its annual management fee to 0.80 per cent of the investment value as against two per cent charged by most mutual funds.

An insurance policy and a mutual fund are dissimilar as their aims and tax benefits are different. However, there is a common thread running through unit linked insurance policies and mutual funds; each investor's money is put into a clearly defined basket of securities and its returns disclosed regularly.

"Nobody is looking at expense ratios, they are looking at returns," said Mr A. Balasubramanian, a fund manager at Birla Sun Life Mutual Fund. He felt expected returns from an investment drove decisions.

Mr Dhirendra Kumar, head of Value Research, an outfit that researches mutual funds, echoed Mr Balasubramanian's views. Investment costs such as management fees were critical to the long-term investor, while investors today generally had a short-term approach, he added.

Mr T.P. Raman, head of Sundaram Mutual, disagreed with the general view on the recent development. He felt the move by insurance companies could impact mutual funds' fees by turning into a reference point.

The trigger that could reduce a mutual fund's fees may lie within the industry, and not elsewhere, suggested Mr Prakash Dalal, Chief Marketing Officer, Kotak Mutual. If index mutual funds' (the scheme's investment mirrors a chosen index and fees are lower) returns improve, other equity schemes would eventually feel the pressure.