April 03, 2018

How Fund Houses Are Trying To Sabotage SEBI’s Expense Ratio Reforms

Seeing the things that some fund houses do, frequently gives me the feeling of watching cheap crooks in action.  The type that get a thrill from travelling without a ticket.  The type that like to steal from the weak and elderly.  The type that give a stupid grin when caught with their hands in the cookie jar.  Except that there’s nothing cheap about the scale on which fund houses operate.

It’s been a month since SEBI’s disclosure norms for expense ratios came into effect.  They were among the most significant set of reforms undertaken by SEBI in recent times.  They were intended to boost transparency, and bring down costs.  Yet the fact is that some fund houses have lacked the ability to appreciate the spirit of those moves, while others have plain ignored it. Worse still, some fund houses have shown no respect for investors or for SEBI and have, in effect, mocked the process of reforms (see here, for example).  In this post, I want to give a sense of how widespread this is.  I will talk specifically on one key issue i.e. the expense ratio files that fund houses have put up on their websites.  I hope to spotlight the questionable approach of multiple fund houses, and the message that they appear to be giving to their investors. It is based on what I have seen across the websites of select fund houses: it is not an exhaustive analysis. 

“Don’t visit our website!”
On many fund house websites, locating the expense ratio file can be a tall order.  It might be under disclosures, or under downloads, or somewhere else.  Probably no fund house has made it tougher to locate the file than Kotak Mahindra MF.  Leave aside the fact that its website is a sprawling mess, or that it does not seem to have even the option for a search.  When I tried looking for the file, I just couldn’t find the link.  It wasn’t even on the sitemap.  Finally, I had to do a search on Google to get to the file.  Just so that you know, when it comes to other fund houses, doing a search on Google isn’t going to necessarily help.

“We’re going to make it really difficult for you!”
What if you want to compare expense ratios across all schemes of a fund house?  Many fund houses have presented their data in such a manner that it is not easy to do so.  Some, such as IDFC MF and Kotak Mahindra MF have given the data for each scheme in a separate sheet, making it a gruelling task to do such comparisons.  Others like  ICICI Prudential MF and SBI MF have made the task even more laborious because they have opted to have separate files for each scheme.  Thus, instead of a single download, they expect you to make multiple downloads, each time you want to see the data.  And given the number of schemes that they have, that, by itself, could take a really long time. 

“We’re going to make it really, really difficult for you, and we don’t care what SEBI thinks!”
Getting expense ratio information from the HDFC MF website poses a different level of difficulty.   The fund house first wants you to decide whether you want current data or historical data.  If it is historical data, then you are expected to put in a date range.  Thereafter, just like ICICI Prudential MF and SBI MF, you have to download the data for each scheme separately.  Last, but not the least, the information in the files is presented in a format that is different from what SEBI has stipulated.  As a result, if you simply want to compare expenses across direct and regular plans of a single scheme, doing so is an uphill task.

“We’re going to drive you nuts, and SEBI can’t do a thing about it!”
In what I would describe as a drastic departure from SEBI’s format, DSP BlackRock MF and IDBI MF (and possibly others) have opted to give the expense ratios for each date in a separate file.  Consequently, if you want to examine the date-wise expense ratios in any single scheme, be prepared for a nightmarish experience.  In the case of IDBI MF, if you want to compare expense ratios across schemes on any single date, that task will also prove to be arduous because the information for each scheme is in a separate sheet.  In my opinion, of all the fund houses, the approach taken by IDBI MF is either the most harebrained or the most sadistic.

“We’re the most investor-friendly!”
I have to admit that, going into this exercise, I did not expect UTI MF to emerge as the best example of a fund house conforming to SEBI’s disclosure.  Fact is, it was a delight to see what the fund house has done: I just hope that they keep it up.  All you need to do is to select a date range.  You can then download the daily expense ratios across all schemes, exactly the way SEBI has specified, and all in a single sheet.  What’s more, the scheme names are entered in such a way that using the feature of filters in Excel, you can easily make comparisons across schemes.  I am not sure if what they have done can be improved but as things stand, every fund house should at least follow their lead.

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