1 hr ago
New UPI Charges Could Affect Mutual Fund Scheme Costs
Some digital payment transactions may create extra costs for mutual fund companies.
These companies are called AMCs.
An AMC can pay costs of up to 2 basis points itself.
If the cost is higher, it must charge the extra amount to the mutual fund scheme.
One option is to reduce the AMC’s management fee.
Another option is to include the cost in the scheme’s BER.
The final effect will depend on how each AMC records the cost.
The available information does not explain specific changes to QR payments, SIPs, or individual investors’ payments.
Additional transaction costs may affect asset management companies and mutual fund schemes.
AMCs can absorb transaction costs of up to 2 basis points on their own books.
Costs above 2 basis points must be charged to the mutual fund scheme.
An AMC could absorb the cost by reducing its management fee.
Alternatively, an AMC could factor the additional cost into the scheme’s BER.
- Who
- Asset management companies and mutual fund schemes; Vashistha Iyer of Capitalmind Mutual Fund provided the explanation.
- What
- Additional transaction costs may be absorbed by AMCs or charged to mutual fund schemes.
- Where
- When
- Why
- The costs arise from the transaction charges discussed in connection with UPI payments.
Absorb the Cost
Charge the Scheme
How AMCs may handle additional transaction costs
Absorb the Cost
An AMC could absorb the MDR by reducing its management fee while keeping the scheme’s BER unchanged.
Charge the Scheme
An AMC could factor the additional cost into the scheme’s BER, with costs above 2 basis points charged to the scheme.
Key facts
- Cost threshold
- AMCs can absorb transaction costs of up to 2 basis points on their books.
- Costs above threshold
- Costs beyond 2 basis points have to be charged to the scheme.
- Management fee option
- An AMC may absorb the additional cost by reducing its management fee.
- BER option
- An AMC may instead factor the additional cost into the scheme’s BER.
- Final accounting
- The effect depends on how an AMC chooses to account for the additional cost.
Quotes
Vashistha Iyer
Executive director at Capitalmind Mutual Fund
“It will depend on how an AMC chooses to account for the additional cost. It could absorb the MDR by reducing its management fee while keeping the scheme's BER unchanged, or factor the additional cost into BER.”
livemint.com
Sources
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