Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: form 3cd :: TDS :: empanelment :: due date for vat payment :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: articles on VAT and GST in India :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: ACCOUNTING STANDARD
Service Tax »
 GST to rate taxpayers, businesses on payment record, make ratings public
 7 major benefits of Goods and Services Tax
 100 Opening GST Profiles- Indirect Taxation- ALL Industries
 New Opening Sr. Manager-Indirect Tax For A Leading Power Company
 Tax Collected At Source Under GST Regime
 India's GST challenge makes Donald Trump's tax overhaul look easy
 What does GST hold for Indian youth?
 GST will help India move towards becoming a commercial union
 Friendly advance ruling mechanism to smoothen ride under GST regime
 GST impact: Small businesses could under-report income initially
 The art of doing business under GST

MF investors may face service tax whammy
December, 27th 2011

Investors may end up shouldering higher costs for their equity mutual fund investments if the recommendation of a Securities and Exchange Board of India (Sebi)-appointed panel on mutual fund is approved by the regulator. The committee has suggested exclusion of service tax from the fee that investors pay mutual funds every year, measured as expense ratio.

The move would bring down the expense ratio to 2.4% from the current 2.5% on equity schemes with assets below 100 crore, but the excluded service tax could effectively increase the overall charges of investors to 2.6% (where funds get 1.25% of management fees), industry officials said.

The panel has recommended that the 10.03% service tax could be levied on investors over and above the 2.4% expense ratio. In the case of debt funds, the committee has slashed expense ratio from 2.25% to a maximum of 2.15%, excluding service tax.

"This is a kind of an eye-wash if seen from an investors' point of view. Investors will end up paying more if they exclude service tax from expense ratio bracket," said the national head (financial services) of a leading audit firm.

"But then, fund houses are right in taking such a step as they do not have much leeway to earn profits under the current expense structure. Even if Sebi agrees to this formula, mutual fund will still be cheaper than insurance products in terms of expense charges," he said.

The Sebi-appointed committee has capped the expense charged on exchange-traded funds and fund-of-funds at 1% after keeping out the service tax. Expense ratio is the fee charged by a fund house to manage and operate the fund. The charges include management fees, administrative fees, and other operating costs.

The panel has sought opinion from all fund houses before submitting the final draft to Sebi. Reversing an earlier proposal, the committee has decided to keep the expense ratio slabs unchanged. The first 100 crore will attract a maximum expense ratio of 2.4% (which excluds the service tax). Schemes with larger asset bases will have to trace the slab and mandatorily bring down their expense ratio. Funds having 800 crore and above will be allowed to charge a maximum of 1.75% as expense ratio.

The Sebi panel has also proposed to keep exit load on equity mutual funds at 1%. The catch, however, is that fund houses will not get the entire 1%, if an investor redeems his money from the scheme before one year.

"A formula will be drawn wherein fund houses will get only 30-40% of the exit load. The remaining money will be reinvested into the fund. This is done to reward investors who are staying invested in the fund. The formula will be drawn taking into consideration problems faced by fund houses in times of early redemptions by investors," said a member of this committee.

The panel has recommended to the regulator's board to break down the bifurcation within the expense ratio. This step will allow mutual funds to manage their expenses better and could improve their profits.

"This move will help larger fund houses more than anybody else," said the chief executive of mid-sized fund house.

"Fund houses with large schemes have the leeway to reduce expense ratio below 1.4%. But they are not doing that; they still charge 1.8-1.9% as total expense ratio. With the exclusion of service tax and bifurcations within expense ratio, these fund houses will have enough money to pay distributors and push their schemes," the chief executive said.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Portfolio

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions