With three per cent increase in service tax likely after the implementation of goods and services tax (GST) from July 1, the expense ratio of mutual fund houses across the country will also go up by 3 per cent.
Expense ratio is the measure of the cost incurred by an investment company to operate its mutual fund (MF).
The GST will, however, benefit small MF distributors having an annual income of up to Rs 20 lakh.
The government has exempted distributors’ annual earning up to Rs 20 lakh from paying service tax. Currently, distributors earning up to Rs 10 lakh as a commission are exempted from paying service tax.
“We should wait for the fine print before we jump to any conclusion. However, what I understand for now, is that expense ratio will increase marginally,” PPFAS Mutual Fund chairman and chief executive (CEO), Neil Parag Parikh said.
“At my company, the expense ratio for direct plans is currently 1.8 per cent, and 2.3 per cent in case of regular plans plus the existing service tax of 15 per cent. In case service tax increases to 18 per cent than the expense ratio of these two plans will also go up accordingly,” he added.
Taurus Mutual Fund CEO, Waqar Naqvi said that “with the implementation of GST, the total expense ratio of my company will go up, though marginally.”
“However, small distributors with an annual income of up to Rs 20 lakh and who comprise around 80 per cent of total distribution force in the industry will get benefited out of the new tax regime,” he added.
Industry experts also feel that mutual fund products are set to become costlier on the implementation of GST.
At present, mutual fund attracts 15 per cent service tax. However, under GST, it would be increased by 3 per cent to 18 per cent.
Still, fund houses are bullish about GST.