Mutual funds: Entry load might make a comeback as fund houses battle downturn

Sep 16 2013, 08:11 IST
Comments 0
Mutual fund investors may again see a change in the way the industry charges them to keep themselves and the distribution community afloat. Mutual fund investors may again see a change in the way the industry charges them to keep themselves and the distribution community afloat.
SummaryThere's need to evolve better mechanisms to reward distributors and not burden new investors.

The mutual fund industry is pushing for the return of the entry load. Even as Sebi does not deny the possibility of reversing the ban, there is a need to evolve better mechanisms to reward distributors and not burden new investors with levies

Having already seen various models being designed by the regulator and market players to remunerate the distributors, the mutual fund investors may again see a change in the way the industry charges them to keep themselves and the distribution community afloat. Four years have passed since the Securities and Exchange Board of India (Sebi) banned entry load on mutual fund sales and while the industry continues to languish on the growth front ever since, the discussions to reintroduce the entry load refuse to die down. The regulator too seems to have kept its options open to bring it back in order to boost growth and penetration of mutual funds in the country.

Last week, while speaking at the Express Group’s Idea Exchange in Mumbai, UK Sinha, chairman, Sebi, did accept that banning entry load was a mistake and it has affected the industry and its growth. Sinha, however, did not deny the possibility of a reversal of that decision.

“I would wait for the investment climate to improve and watch for some more time before taking a call on the same,” said Sinha when asked if the regulator is looking to bring back the entry load for mutual fund sales.

Till July 31, 2009, mutual funds could charge entry load. That meant distributors received a direct commission of up to 2.5 per cent from fund houses for all investments into equity funds and up to 1 per cent for investments into debt funds.

As the industry failed to grow after entry load was banned, Sebi, in August 2012, allowed mutual funds to charge an additional expense fee of 0.3 per cent if they manage to get at least 30 per cent of their total sales from beyond the top 15 cities.

Sinha is thinking on those lines even though he accepts that his decision to allow additional expense charge works out to be equal to that of the entry load that existed in the past. “We have tried to rectify the same,” said Sinha.

If entry load is one option that Sebi may explore to push growth within the industry, it is also looking to enforce mutual fund players to meet the

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...