Sebi for MF entry load waiver

In an investor-friendly initiative, Sebi has proposed to waive the entry load for direct applications received by an asset management company from a mutual fund investor. Sebi said in a statement that applications received on the Internet, or submitted to AMC collection centres and investor service centres and not routed through a distributor or agent or broker, may have their entry load waived.

Written by Markets Bureau

August 23, 2007 00:00 IST

In an investor-friendly initiative, Sebi has proposed to waive the entry load for direct applications received by an asset management company (AMC) from a mutual fund (MF) investor.

Sebi said in a statement that applications received on the Internet, or submitted to AMC collection centres and investor service centres and not routed through a distributor or agent or broker, may have their entry load waived. Currently, MF applications through such modes form a miniscule portion of total applications, but industry players feel there is tremendous scope for a rise in direct applications as it could offer investors substantial savings.

Presently, irrespective of the mode of entry, all investors are required to pay the entry load. According to industry estimates, the distributor charges 2.25% entry load fee on a new equity scheme. The corpus of the entry load is estimated to be in the range of Rs 500-600 crore a year.

Earlier, Sebi had stipulated that the loads collected by AMCs for each scheme would have to be maintained in a separate account and could be utilised towards meeting selling and distribution expenses.

MFs generally utilises the entry load corpus to meet the commission of agents or distributors. So, the entry load collected from investors normally goes towards paying the brokerage of the distributor through whom the application was routed to the AMC.

Sebi has sought public opinion on the new proposal. M Damodaran, chairman, Sebi, has stated several times earlier that there is need to streamline regulation regarding the distribution of schemes.

However, the MF industry is divided on the new proposal. Quantum Mutual Fund is the only fund house in India which has adopted the direct-to-investor approach to eliminate the brokerage fee. Commenting on the regulator?s proposal, Devendra Nevgi, CEO & CIO, Quantum Mutual Fund, said that the direct-to-investor model would help investors reduce cost. Striking a different note, Rajiv Bajaj, managing director, Bajaj Capital, said that the new proposal is detrimental to the growth of the MF industry.

This article was first uploaded on August twenty-three, twenty seven, at zero minutes past twelve in the am.