? Cool Title, but what’s the news?

Investors using direct plans of mutual funds to buy equity schemes have a reason to cheer. Two fund houses have trimmed the total expense ratio (TER), or the cost which an investor pays for buying a mutual fund, of direct plans and others are expected to follow after the capital markets regulator put restrictions on the fees that asset managers can charge investors.

? Okay, but what does it mean?

As per a Sebi circular dated October 22, “All fees and expenses charged in a direct plan (in percentage terms) under various heads including the investment and advisory fee shall not exceed the fee and expenses charged under such heads in a regular plan.” A regular plan is sold by distributors, while in a direct plan, investors buy the scheme directly from the fund house. As a result, the total expense ratio in a regular plan is higher because it includes distributor fees. Direct plans were introduced by the capital markets regulator in January 2013.

? Why should I care?

Earlier, some funds slashed the expense ratio in regular plans, but did not bring down costs in direct plans. Many distributors earned a commission higher than the difference in expense ratio between the regular and direct plans. Source: Economic Times
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