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33.Explain the risk related costs.
As per the SEBI regulation, the total costs that can be passed on to the investors are capped at 2.25% and all costs above the ceiling of 2.25% have to be absorbed by the fund houses.However, the Mutual Funds are permitted to pass the incidence of the tax to their investors within the 2.25% ceiling . Accordingly , Mutual Funds do not pass the tax to their investors and it is borne and paid by the distributors of the Mutual Fund. According to the 2005-06 Union Budget , the service tax imposed on the distribution of Mutual Fund units will have to be paid by the fund houses instead of the distributors . The ceiling of 2.25% on the Mutual Funds expenses was fixed before the Government introduced the service tax. Mutual Funds have been under tremendous pressure over high costs of operations due to the increase in their costs.Representing its members , the Association of Mutual Fund in India (AMFI) has sought permission from SEBI to bill the tax levy to the investors as a result of the new budget provision that took effects from April 1, 2005.
Ans: Mutual Fund charge huge fees that they can get away with and that too in the most confusing manner possible. Besides specializing in investing , Mutual Funds also specialize in hiding their costs and the Fund Managers never intend to make their costs clear to their clients . It would not be painful for the investors to pay for the expenses and costs of the Fund when they derive satisfactory returns . But. the irony is that investors have to pay for the sales charges ,annual fees, and many such other expenses , irrespective of how the Fund has performed.