Business

Operational Losses Ahead

Could this be finis for small mutual funds and AMCs?

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Operational Losses Ahead
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Outlook

AMC’s Basic Fee     Rs 42,00,000          0.80%

Additional Fee          Rs 6,25,000             0.12%

Registry Cost            Rs71,63,750          1.36%       

Custody Cost           Rs 66,22,500          1.26%

Other Costs (say)     Rs 19,62,500          0.37%

Total                       Rs 2,05,73,750      3.92%

Permitted Limit        Rs 1,31,25,000      2.50%

Shortfall                 Rs 74,48,750         1.42%

This is clearly a strange scenario, since it means the relatively low-skill back-room operations are going to make more money than high-skill fund management. In addition, the AMC has to make up the shortfall of Rs 74,48,750 from its own assets. Bottomline: even though it has performed its fund management job creditably, it still makes a loss on the operation.

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