Goldman Sachs is coming out with a new mutual fund called the Goldman Sachs India Equity Fund, and the NFO (New Fund Offer) for this scheme starts on October 17th 2012, and ends on October 31st 2012.
This is an actively managed equity mutual fund which means that this fund will primarily invest in shares, and the fund manager will choose which shares they should invest in to beat the market.
The SID (Scheme Information Document) states that stock picking will not be limited by any sectors or market capitalization, and they will use a bottom up approach to stock picking. So essentially, they can choose from any listed stock if it appeals to them.
From what I understand, the section of expenses doesn’t say how much they will charge; just that they can charge the maximum permissible by SEBI. If anyone has a different interpretation, please leave a comment.
For me, the most interesting thing about this fund is that Goldman Sachs has decided to bring out an actively managed fund after buying Benchmark Assets which was a company that was known for its wide range of low cost index funds. It looks like GS thinks that there is more growth potential in actively managed funds than index funds in India, and this may remind you of the post and discussion around why index funds don’t do well in India that was published here some time ago.
As far as investing in this or any other NFO is concerned, I’ve written several times that there are no benefits of investing in a NFO, and it’s a lot better to wait and see how a fund performs than to jump in from day one. Perhaps, the only exception to this is when you have a fund that offers exposure to an asset that’s not currently available, but that’s clearly not the case with the GS India Equity Fund; there are plenty of good performing active mutual funds that are available to investors already.
As of now, Expenses are charged in two categories
1) Management Fees
2) Other Expenses
Please note as per latest SEBI circular total recurring expenses can be charged entirely as management fees also.
In case of this NFO, as stated in SID the total recurring expenses are within the permissible limit prescribed by SEBI.
NFO SEBI Limit
AUM % Expenses AUM % Expenses
0-100 crs 2.50% 0-100 crs 2.70%
100-400 crs 2.25% 100-400 crs 2.45%
400-700 crs 2.00% 400-700 crs 2.20%
above 700 crs 1.75% above 700 crs 1.95%
Illustration:
Suppose this NFO collects 1000 crs then the above expenses will be levied as follows
NFO
AUM % Expenses Expenses in Crs
0-100 crs 2.50% 2.5
100-400 crs 2.25% 6.75
400-700 crs 2.00% 6
above 700 crs 1.75% 5.25
Total 20.5
With respect to above the average total recurring expense comes to 2.05%
The 0.02% annually will be charged to the scheme for investor education and awareness. The investor education charges are inclusive in above total recurring expenses.
Also would like to draw your attention to brokerage limits set by SEBI is 12 bps for Equities & 5 bps for Derivatives transactions as earlier there were no limits. All the brokerages are capitalized in cost.
SEBI has mandated Mutual Funds to publish Expense ratio on their websites. (Under mandatory disclosures)
Thanks Piyush – this consistent with what I understood, and I read the same excerpt from the SID, and since we don’t know how much they will be able to collect, it’s not possible to say how much they will charge. And even then they might not charge the maximum, this just indicates that they may do so.
Truly right, just wanted to clarify with an example for better understanding of readers.
Good idea! – thanks!