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. The expense ratio is the measure of the cost incurred by an investment company to operate its mutual fund.
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, Neil Parag Parikh told Press Trust of India.
"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 then 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. "GST implementation will surprise positively as everyone is getting ready for a smooth transition," Birla Sun Life Mutual Fund chief executive A Balasubramanian said.
Mutual fund houses charge investors for managing their money. The expense ratio is the cost of expense incurred by an investment company to manage the funds of its clients. It is the fees charged by the investment company to manage the funds.