Entry load scrapped on open-ended MF schemes

KOLKATA: It's raining goodies on the mutual fund industry. Within days of issuing guidelines for real estate investment trusts and indicating a willingness to increase the total overseas investment limit by $2 billion, the Securities & Exchange Board of India (SEBI) has decided to scrap the entry load on open-ended mutual fund (MF) schemes.

The move is in sync with SEBI’s ongoing efforts to reduce the cost to investors looking to invest in mutual fund schemes. Sometime ago, the market regulator had reduced the fee structure for open-ended schemes.

Information trickling in suggests SEBI is contemplating tinkering with the fee structure of close-ended schemes as well in the near future.

When contacted by ET, SEBI chairman M Damodaran said: “Mutual fund scheme is a good entry-level vehicle for first time investors. We are constantly trying to find ways of making investment in MF schemes more friendly and attractive.” He, however, refused to comment on SEBI’s decision to scrap the entry load on open-ended MF schemes or on its plans for the close-ended schemes.

SEBI has been toying with the idea of either allowing mutual fund houses to charge a variable entry load for open-ended schemes or eliminating the load from these schemes.

The Association of Mutual Funds in India (Amfi) and other market participants had, in their last meeting, suggested that SEBI may look at introducing a variable load structure in line with the structure prevalent in developed markets such as the United States and Australia.

Entry load is a charge levied by a mutual fund when an investor steps in. Open-ended mutual fund schemes charge between 2- 2.5 % of the amount invested as entry load to meet their marketing costs and distribution commissions. On the other hand, close-ended schemes are permitted to charge up to 6% as initial issue expenses that are amortised over the life of the scheme.