SEBI likely to remove entry charge on direct MF investments
Investors who make their own investment decisions are likely to benefit the most if SEBI lifts entry load on direct MF investments
By Bakul Chugan, INDIATIMES NEWS NETWORK |
MUMBAI: SEBI’s proposal to remove entry load (an initial charge on the fund) on direct MF investments is good news for retail investors.
This facility would be available for investors who apply directly to the asset management company (AMC) either through the internet or by visiting the premises of the fund house without involving the services of the agents.
This move is progressive as entry loads only reduce overall returns earned by mutual fund investors. The entry loads — those that are charged at the time of investment — can range anywhere from 1-2 .25% of the investment amount depending upon the category of the scheme.
So, for instance , an investor seeking to invest Rs 10,000 in an equity fund actually ends up paying Rs 225 as entry load while the rest is invested. Says Gaurav Mashruwala, a certified financial planner, “An investor who is equipped to make his/her own decision on choosing of schemes and has the time to visit a mutual fund office directly will save a substantial amount.
Eventually, it is a forward step towards free pricing where the investor and the distributor agree on the load structure.”
Most mutual fund investors of the country today rely on the advice rendered by their mutual fund agents to pick and choose the schemes to invest in. Those who are better off use the services of their financial advisors. However, ones who can truly understand this industry and make their own investment decisions are only a handful. And it is probably this third category of investors who will be benefited the most from this new proposal.
The no-front-load model was reportedly introduced for the first time by Vanguard which decided to go ahead and sell mutual funds without the service of agents. In India, Quantum MF is following a similar model of selling mutual fund schemes. The fund accepts investments through the internet and does not charge a front-end load to the investor.
This facility would be available for investors who apply directly to the asset management company (AMC) either through the internet or by visiting the premises of the fund house without involving the services of the agents.
This move is progressive as entry loads only reduce overall returns earned by mutual fund investors. The entry loads — those that are charged at the time of investment — can range anywhere from 1-2 .25% of the investment amount depending upon the category of the scheme.
So, for instance , an investor seeking to invest Rs 10,000 in an equity fund actually ends up paying Rs 225 as entry load while the rest is invested. Says Gaurav Mashruwala, a certified financial planner, “An investor who is equipped to make his/her own decision on choosing of schemes and has the time to visit a mutual fund office directly will save a substantial amount.
Eventually, it is a forward step towards free pricing where the investor and the distributor agree on the load structure.”
Most mutual fund investors of the country today rely on the advice rendered by their mutual fund agents to pick and choose the schemes to invest in. Those who are better off use the services of their financial advisors. However, ones who can truly understand this industry and make their own investment decisions are only a handful. And it is probably this third category of investors who will be benefited the most from this new proposal.
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The no-front-load model was reportedly introduced for the first time by Vanguard which decided to go ahead and sell mutual funds without the service of agents. In India, Quantum MF is following a similar model of selling mutual fund schemes. The fund accepts investments through the internet and does not charge a front-end load to the investor.
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