Journal of Contemporary Issues in Business and Government Vol. 27, No. 3, 2021 https://cibg.org.au/ P-ISSN: 2204-1990; E-ISSN: 1323-6903 DOI: 10.47750/cibg.2021.27.03.270 Copyright © The Author(S) 2021. Published By Society Of Business And Management. This Is An Open Access Article Distributed Under The CCBY License. (Http://Creativecommons.Org/Licenses/By/4.0/) Variables Impacting Mutual Fund Expense Ratio: The Indian Midcap Mutual Fund Experience VIJAYA KITTU MANDA 1* , DR. P SAI RANI 2 , DR. ARUNA POLISETTY 3 1 Doctoral Research Scholar, GITAM Institute of Management, GITAM Deemed to be University, Visakhapatnam, Andhra Pradesh, India 530 045 2 Head – Department of Finance, ICBM-School of Business Excellence,Hyderabad, Telangana, India 500 048; 3 Assistant Professor, GITAM Institute of Management, GITAM Deemed to be University, Visakhapatnam, Andhra Pradesh, India 530 045 *Corresponding Author Email: vijaykittu@hotmail.com 1 , sairani@icbm.ac.in 2 , arunakovvuru@gmail.com 3 Abstract: With an increase in the number of fund houses entering the asset management business, the Indian Mutual Fund Industry has turned into a competitive marketplace. An increase in the number of schemes translates to increased choice (and confusion) for investors, while for fund managers, it means more pressure to beat the benchmark indices. Correlation research method is used on scheme variables such as Assets Under Management (AUM), Expense Ratio, and the Monthly Returns of select Indian Midcap Schemes for the period January 2016 to 2021 to determine the statistical relationships between the variables. Three schemes from amongst the midcap schemes, after putting them into clusters, are picked for this study. Findings from this research can help fund managers, and Asset Management Companies (AMCs) better manage their schemes by tweaking expenses and further maximizing investor returns. Keywords: Scheme expenses, total expense ratio, mutual fund variables, expense ratio JEL classification: G21, G23 INTRODUCTION The competitive Indian Mutual Fund Industry is only becoming more competitive over the years. (Vijaya Kittu & Aruna, 2020) Increasing new players entering into the asset management business are one primary reason for this. The industry rose from 31 Asset Management Companies (AMCs) running 43 schemes and having Asset Under Management (AUM) of Rs. 68,984 crores in 1997-98 to 43 players managing 1729 schemes and an AUM of Rs. 32,29,580 crores as of February 28, 2021. The AUM growth rate is astonishing 18.2 percent in CAGR terms making the Indian Asset Management Market one of the fastest-growing globally. Increased peer competition, reduced opportunities (because of increased difficulty to exploit), and increased pressure on fund managers to generate alpha directly result from an increase in the number of fund houses. (Stein, 2020) Mutual Fund market is a tournament-like market with the winner (top-performing scheme) stealing all the attention and gets disproportionately higher new investments. Mutual fund investors are sensitive to fees, and higher advisory fees significantly reduce fund market shares and so constrain fees. (Coates, IV & Hubbard, 2007) Higher expense ratios will never make active funds outperform their passive fund counterparts. (Elton et al., 2019) Further, the launch of new index funds will bring turbulence in the active management funds space and competition. Fund management fees of direct funds were reduced by 5% on average, while those sold through distributor networks have increased by 6 percent. Overall, the fund management fees are downward sloping because of heightened competition challenged by low-cost passive funds such as index funds and ETFs. (Sun, 2021) LITERATURE REVIEW There are many ways that fund managers can explore to reduce fund expenses. Because any reduction in expenses indeed (positively impacts) funds returns, this has been a topic of interest in academic research circles. While most research is confined to single funds, some researchers examined common stock holdings and multi- fund management and found that it reduces fund operating expenses and enhances returns. The flipside is that the scheme concentration for the stock holding might increase and thereby increase risk. Hence, individual investors who are expense ratio cautious have to keep an eye on this factor. (Park, 2016) Some studies separated sales expenses from management expenses. An examination of Korean mutual fund data from July 2001 to December 2009 showed an increase in management fees has resulted in improved risk-