SEBI ends entry load for MF schemes

SEBI ends entry load for MF schemes
Hindustan Times Business, June 19, 2009, Page 21

Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.

This decision was taken by Securities and Exchange Board of India (SEBI) at its board meeting on Thursday in a move that shifts mutual fund selling to a fee-based regime.

Investors currently pay entry load of 0.5-2.25 per cent on the amount they invest in mutual fund schemes, though some mutual funds do not charge if the investment is made directly and not through a mutual fund distributor or advisor.

“Now, mutual fund investors will be deciding how much commission they want to pay and would be paying it directly to distributors,” C B Bhave, Chairman of SEBI, told reporters.

“Which distributor will sell mutual fund now?” asked the head of a leading mutual fund, who did not want to be identified. “There is no incentive for them to sell funds, they will only sell ULIPs, which gets them high commissions.”

However, Sudip Bandyopadhyay, managing director, Reliance Money, the largest distributor of mutual funds said, “Conceptually, it’s a good move and we welcome it but we need to see how it gets implemented on the ground. We think it will bring maturity to the market.”

On the ground, the move raises a different question. “How many investors will pay fee?” asked Surya Bhatia, an independent financial planner. “In the long term it will be good but they should club insurance products along with this, otherwise there will be no level playing field.”

At the end of March 2009, mutual funds had a total of Rs 493,300 crore of assets under management. The total number of mutual fund investor accounts in India was 42 million, though the actual umber of investors would be lower as investors hold multiple folios.

As per the SEBI decision, distributors are now required to disclose the commission received by them for different schemes or funds they are distribute and/or advise.

Dispelling fears of distributors taking investors for a ride, Bhave said, “Investor would decide how much he wants to pay. In an investor-dominated market, the competition will ensure a lower rate of commission and higher quality of service.”