In recent times, capital market
regulator Sebi has taken a few
moves to protect the interests of the investors, particularly the retail
investors. In the mutual fund industry also, steps have been taken to
empower investors by bringing in more transparency in the loads borne by the
investors so that they can make informed investment decisions. Towards this end,
Sebi has recently scrapped the entry load for all mutual fund schemes and
thereby made it cheaper for investors to park their savings in mutual funds.
Indeed, entry load is the fee charged by the mutual fund houses at a
time when investors purchase mutual fund units. This load is usually meant
for compensating the distributors of the mutual funds. Before Sebi came up
with this rule, the entry load was capped at 2.25% of investment—if one
investor purchased an MF unit for Rs 100, only Rs 97.75 was invested in the fund
and the major part of the balance Rs 2.25 was paid to the distributor. Under
the new guidelines, the entire money shelled out by the investor goes to
the fund. In the new arrangement, the upfront commission to the
distributor is paid by the investor directly, based
on his judgment of various factors, including the services rendered by the
distributor. Further, all loads, including exit load and Contingent
Deferred Sales Charge (CDSC) for the scheme, have to be maintained in a separate
account, and this amount is used by the Asset Management
Companies (AMCs) to pay commissions to the distributors and to meet other
marketing and selling expenses. It has been left
to the AMCs to credit any surplus in this account to the scheme, whenever felt
appropriate. Distributors are required to disclose their commission. It is
expected that the introduction of new rules will reduce the cost of
transactions, raise the level of transparency and prevent mis-selling by distributors. |
