MFs resort to entry-exit load to check redemption

Mutual funds are becoming smarter and in order to prevent any erosion in their assets under management by way of redemption by investors, more and more MFs have decided to charge exit load in open-ended schemes. In some of the closed-ended schemes too, such type of charge is levied on investors.

Written by Markets Bureau

November 19, 2007 00:00 IST

Mutual funds (MFs) are becoming smarter and in order to prevent any erosion in their assets under management (AUM) by way of redemption by investors, more and more MFs have decided to charge exit load in open-ended schemes. In some of the closed-ended schemes too, such type of charge is levied on investors.

According to industry watchers, MFs have begun taking precautionary measures to mitigate the risk of redemption pressures in a volatile market. The fund houses are offering more closed-ended equity-based New Fund Offerings and keeping both entry and exist load in the open-ended equity schemes to checkmate any kind of redemption pressures in the event of a dip in the market.

The Bombay Stock Exchange has seen intra-day volatility of more than 300 points. In the wake of this, MFs may face redemption problems, the way they had experienced in last year’s May meltdown when the market capitalisation (M-Cap) has taken a hit of 30% between May 10 and June 15.

Influenced by this, the fund houses are largely offering more closed-ended funds than open-ended schemes. The major fund house, UTI MF has introduced UTI Infrastructure Advantage Fund Series I, a closed ended equity scheme this month.

This article was first uploaded on November nineteen, twenty seven, at zero minutes past twelve in the am.