MF investment to get cheaper
Sebi may remove 2.25% entry load for applications not routed via distributors.
By TNN |
MUMBAI: In what could be a major blow to the ‘all powerful ’ mutual fund distributors, Sebi said on Wednesday it is considering a waiver of the entry load for direct applications received by asset management companies.
Equity mutual funds generally charge about 2.25% entry load on one-time investments made directly or through distributors. At present all investors have to pay the entry load irrespective of the mode of entry.
In the interest of investors, Sebi is now considering a waiver in entry load for direct applications received by the AMCs — that is those applications received over the internet , submitted to the AMC or collection center, that are not routed through any distributor , agent or broker. The market regulator has invited feedback from the public and AMCs on the proposal.
In the present scenario even if an customer invests in an MF directly around 2- 2.5% is charged as entry load. As per industry practice the entry load is normally utilised towards meeting the agent or distributor’s commission.
In addtion, for every subsequent year that his investment is with the MF, he is charged between 0.40% to 0.75% per annum on the total value of his investment.
This amount also goes to the distributor. So according to a rough industry estimate, if an investor keeps his money with a mutual fund for 20 years, then about 40 percentage points of the absolute return on initial investment goes to the distributor.
As of now of the 32 mutual funds already operational, only one fund house, Quantum Mutual Fund, does not depend on distributors to sell their product. Among the larger fund houses, UTIMF does not charge any load to investments done through UTI Mutual Fund’s website.
“This is a step in the right direction by Sebi. With more and more technology helping the industry and larger number of informed investors entering the market, we think direct investments in mutual funds will take off in a big way,” said Debashish Mohanty, country head, sales UTI MF. This is also another way of rewarding educated MF investors.
Sebi has been mulling this move for a while now but there has been heavy lobbying by distributors to restrain the market regulator from going ahead and implementing the rule, informed industry sources told TOI. Internationally, it is an accepted practices that if you invest directly in a mutual fund, no entry load is charged.
“It will be discussed at a various levels before a final decision. But even if its implemented let us understand that the fact is investor will always depend upon quality distributor for their quality advice to do their financial planning and hence it will make no difference,” said Bhanu Katoch of JM Financial Asset Management.
Equity mutual funds generally charge about 2.25% entry load on one-time investments made directly or through distributors. At present all investors have to pay the entry load irrespective of the mode of entry.
In the interest of investors, Sebi is now considering a waiver in entry load for direct applications received by the AMCs — that is those applications received over the internet , submitted to the AMC or collection center, that are not routed through any distributor , agent or broker. The market regulator has invited feedback from the public and AMCs on the proposal.
In the present scenario even if an customer invests in an MF directly around 2- 2.5% is charged as entry load. As per industry practice the entry load is normally utilised towards meeting the agent or distributor’s commission.
In addtion, for every subsequent year that his investment is with the MF, he is charged between 0.40% to 0.75% per annum on the total value of his investment.
This amount also goes to the distributor. So according to a rough industry estimate, if an investor keeps his money with a mutual fund for 20 years, then about 40 percentage points of the absolute return on initial investment goes to the distributor.
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If the proposal goes through smaller MF houses which do not have a large network of owned offices across will have a tough time as they will have to depend more on distributors to sell their products.As of now of the 32 mutual funds already operational, only one fund house, Quantum Mutual Fund, does not depend on distributors to sell their product. Among the larger fund houses, UTIMF does not charge any load to investments done through UTI Mutual Fund’s website.
“This is a step in the right direction by Sebi. With more and more technology helping the industry and larger number of informed investors entering the market, we think direct investments in mutual funds will take off in a big way,” said Debashish Mohanty, country head, sales UTI MF. This is also another way of rewarding educated MF investors.
Sebi has been mulling this move for a while now but there has been heavy lobbying by distributors to restrain the market regulator from going ahead and implementing the rule, informed industry sources told TOI. Internationally, it is an accepted practices that if you invest directly in a mutual fund, no entry load is charged.
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But some players believe that asset management companies are not equipped to deal directly with customers, who would require some amount of support as well as advice from distribution agents. “It will be discussed at a various levels before a final decision. But even if its implemented let us understand that the fact is investor will always depend upon quality distributor for their quality advice to do their financial planning and hence it will make no difference,” said Bhanu Katoch of JM Financial Asset Management.
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