The Israel Securities Authority has banned mutual fund managers from charging 0% management fees. On Friday, Psagot Ofek Investment House Ltd. announced that it was raising its management fee from zero to 0.125% on its money market funds. In a notice to the Tel Aviv Stock Exchange (TASE), the company said that the Securities Authority told the company that no management fees was in violation of its regulations.
The reason for the Securities Authority's decision lies in a decision from eight years ago banning zero management fees in order to prevent mutual fund management companies from losing money. That decision is still binding.
However, it cannot be ruled out that the Securities Authority may soon revoke its previous decision on the matter. For now, the minimum mandated management fee is 0.125% on money market funds.
Late last week, a slew of mutual fund management companies announced plans to charge zero management fees on their money market funds, a new product in Israel that will be launched this week. Money market funds are designed to compete against bank deposits, providing a higher yield at very low risk. Since every fraction of a percentage point of yield for money market funds is significant, mutual fund managers decided to slash their management fees, sometimes to zero.
Whereas most mutual fund management companies charge a management fee of 0.3% on assets managed, Meitav Group has cut its fee to 0.125%. Prisma Investment House Ltd. decided to go for broke, and cut its fee to zero for the first three months of a fund's activity, and was followed by Psagot-Ofek, Gaon Investment House Ltd., and Africa-Israel Mutual Funds Management Ltd. These measures are now in question.
Published by Globes [online], Israel business news - www.globes-online.com - on December 30, 2007
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