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Wednesday, July 01, 2009

No mutual fund schemes will have an entry load from 1 August 2009

Funds could, however, levy an exit fee of up to 1% of the redemption amount.

No mutual fund schemes will have an entry load from 1 August 2009, the Securities and Exchange Board of India (SEBI) said in a note late on Tuesday 30 June 2009.

Entry load refers to the charge levied by a mutual fund on investor investing in mutual fund products, to meet their marketing costs and distribution commissions. Funds could, however, levy an exit fee of up to 1% of the redemption amount to pay commissions to distributors and for marketing and selling expenses, it added.

The regulator said investors would pay any upfront charge to distributors directly based on his service. The market regulator directed distributors to disclose all commissions payable to them by mutual funds for different competing schemes of various mutual funds.

The SEBI board had given nod to this proposal on 18 June 2009. The decision will apply to additional purchases in existing mutual fund schemes and switch over to other schemes as well as new schemes from 1 August 2009. This will also apply to systematic investment plans registered on or after 1 August 2009.

My Comments -

A move by SEBI will reduce the cost for investors looking to invest in mutual fund products.

It is one of the good moves for the investors. But, what about the distributors? Will they be able to change or would shift investments into Insurance Sector?

Will legal action help? Will SEBI consider what Distributors want to say? Are Indian markets mature enough for such a move?

Is it really good for investors i am little bit doubtful?

Lets see what course do the Distributors follow. I think it is premature to initiate this kind of move. Our markets are mature for FIIs since they are the one who invest the larger chunk. Retail investors from remote areas & even from urban areas are not even aware about markets & for them Mutual Funds are just a name & they invest in stocks. Its the Advisor/ Distributor who imparts & shares knowledge about the product.

"Client centric approach is good. But, are the investors really willing to pay for advice that is a big question to be asked from SEBI."

If we want to follow U.S rules shouldn't we make CFP (Certified Financial Planner) mandatory requirement for rendering Financial Advice & charging fees for that piece of advice given.

Already if a person is CFP qualified, He/She is supposed to qualify AMFI exam to sell Mutual Funds & IRDA exam to sell General & Life Insurance.

I wonder how both distributors & investors would react to this situation !



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