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TER compression & passive shift
What it is
SEBI caps total expense ratios on a sliding scale that falls as scheme size grows, so AUM growth automatically reduces the fee rate earned. Passive funds and ETFs charge a fraction of active fees
Both forces reduce blended yield on AUM even as assets rise
Impact on industries
- Yield compression is structural and automatic - a successful scheme earns a lower rate precisely because it grew, so revenue lags AUM
- Passive share gains dilute blended yield further, since an index fund earns a small fraction of what an active equity scheme does
- Scale still wins in absolute terms - a larger AUM at a lower rate generates more revenue and far better operating leverage on fixed costs
- Equity mix is the offset since equity schemes earn multiples of debt yields, while gold and silver ETF inflows add AUM at low yields