Uniform entry load for MF investors on cards

MUMBAI: The Securities and Exchange Board of India (SEBI) is set to discontinue the differential loads on high-value investments, in an attempt to provide a level-playing field to mutual fund investors.

The move will balance the load for retail investors, who often end up subsidising their institutional counterparts.
A SEBI committee found it undesirable to have differential loads for corporates/high net worth individuals and retail investors in the same scheme.

Corporate investors don���t face an entry load since they make large investments in a scheme. Thus, retail investors end up subsidising large corporates. There cannot be zero expenses for managing large investor funds, the SEBI committee concluded.

The regulator is also looking at restricting the tenure of debt instruments held by liquid funds. In order to meet sudden redemption pressures, liquid funds may be disallowed from holding securities with a maturity exceeding 90 days.

SEBI may put an end to FMPs��� ���indicative yields���


FMPs and liquid schemes were affected the most by a tsunami of redemption requests in October. A large chunk of portfolio was invested in papers with maturity ranging from six months to a year. The liquid schemes initially used their cash reserves to meet the redemption pressures. However, when cash reserves proved insufficient, mutual funds resorted to fire-sale of assets. This resulted in huge losses to remaining investors.

SEBI is considering a ban on the tendency of FMPs to promise indicative returns/yields. Fund houses currently differentiate themselves by assuring indicative returns. This leads to mis-selling of these products as definite
returns based instruments. The market regulator may impose a sectoral cap of 20-25% on the portfolio investments of mutual funds to enable risk-diversification.

A recent analysis revealed fund houses restrict investments to the banking, finance, telecom, construction sectors. The regulator may soon approve variable entry load. The application form will have an option for distributor commission to be paid by the investor.