FinMin may ask Sebi to re-introduce entry load

* Ministry to pep up MF industry when it meets on Monday

Written by ENS Economic Bureau | New Delhi | Published: July 2, 2012 12:17 am

Concerned over the thumbs down to mutual funds by investors in the recent past,the finance ministry is looking at measures to boost the industry. The ministry,which is scheduled to hold talks with stakeholders on Monday,is considering a proposal to re-introduce entry load on the once popular investment instrument,mutual funds.

“We will meet representatives from mutual fund companies as well as Sebi officials to discuss ways to promote mutual fund schemes. One of the measures we are considering is to ask Sebi to reintroduce commission to brokers,or entry load,” a finance ministry official said.

The move comes less than week after Prime Minister Manmohan Singh,who is now holding reins of the finance ministry,called for addressing problems of the mutual fund industry.

“There are issues about the mutual funds industry which need to be resolved,” the Prime Minister said at a meeting with top finance ministry officials last week. The Mutual Fund Advisory Committee and the Securities and Exchange Board of India (Sebi) is scheduled to meet on July 17 and may take a call on the issue.

The issue was also recently raised by Sebi chief UK Sinha who had earlier proposed that investments in mutual funds to be made eligible for tax exemptions under the Rajiv Gandhi Equity Savings Scheme (RGESS),as a means to pep up the industry.

Significantly,Sinha has however made it clear that reintroduction of entry load is not the correct way to incentivise sales of mutual funds.

The finance ministry is of the view that pushing mutual fund schemes would also help contain investments into gold,which is turning into a problem given the burgeoning current account deficit.

Sources said that the finance ministry,which is yet to notify the structure of RGESS,is keeping all options open after Wednesday’s meeting with the Prime Minister.

The entry load,typically a commission of 2.25 per cent that was paid to distributors of mutual funds — was banned in 2009 by former Sebi chief CB Bhave,who held that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios.

However,inflows into mutual funds dried up after the ban. Industry insiders confirm that the entry load was the main incentive for distributers to push such instruments.

Pushing the load

The ministry,which is scheduled to hold talks with stakeholders on Monday,is considering a proposal to re-introduce entry load on mutual funds

The move comes less than week after Prime Minister Manmohan Singh,who is now holding reins of the finance ministry,called for addressing problems of the mutual fund industry

Sebi chief UK Sinha has,however,made it clear that reintroduction of entry load is not the correct way to incentivise sales of mutual funds

Entry load,typically a commission of 2.25% paid to distributors of mutual funds,was banned in 2009

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