Direct MF applicants may get to avoid entry charge

The Securities and Exchange Board of Indiais considering a proposal to remove the load for direct applications in mutual fund schemes.

The Securities and Exchange Board of India Sebi is considering a proposal to remove the load for direct applications in mutual fund MF schemes. Currently all investors, irrespective of the mode of entry, are required to pay an entry load of 2.25 per cent for equity funds. 8220;Keeping in view the interest of investors, Sebi is now considering giving a waiver in the entry load for direct applications received by asset management companies AMCs, ie applications received through the internet, submitted to AMC or collection centre/ investor service centre that are not routed through any distributor/ agent/ broker,8221; the Sebi proposal stated while inviting public comments.

According to AMFI chairman A P Kurien, 8220;This is a welcome step but essentially for investors who are confident and fully aware and knowledgeable about mutual fund investing, and understand its risks and returns. Others might need the help of distributors who provide an advisory role.8221; This is a very positive and 8220;constructive step8221;, said Financial Planning Standards Board India FPSBI CEO Ranjeet Mudholkar. 8220;In fact, we had recommended this along with disclosure of commissions to agents. Since no load is payable on purchase or sale of units, the entire corpus will be put to work.8221; This would help in other ways too, he added. 8220;From the financial planning perspective, this would encourage more fee-based advice, which in turn would help investors get the right asset allocation.8221;

Fund houses have welcomed the move. 8220;Fidelity supports the proposal as it is in the investors8217; interest,8221; a Fidelity spokesperson said. This is an investor friendly measure, said JP Morgan AMC CEO Krishnamurthy Vijayan. 8220;But the distributor does add value in terms of giving advice to the investor. Finally, it is the investor who has to decide which way he wants to go.8221;

Distributors are, however, divided on the issue. Bluechip Corporate Investment Centre managing director J Rajagopalan said, 8220;If an investor knows when and what to buy and sell, he should take this route.8221; On fears about distributors losing clients and revenues, he said, 8220;Let us see. In my opinion, distributors won8217;t lose out as they provide advice on which funds to buy.8221;

Others feel different. 8220;This is a contradiction of existing Sebi rules,8221; says Bajaj Capital managing director Rajiv Deep Bajaj. 8220;Direct investing with mutual funds without entry loads is tantamount to rebating to investors while Sebi rules debar distributors from rebating to investors. This move will also be detrimental to retail growth of mutual funds as distributors may become unviable.8221; The measure will help the investor boost returns. If a household invests in a Rs 10,000 per month systematic investment plan SIP through a distributor for 10 years, its return would be Rs 26.9 lakh at the end of the period, assuming an average annual return of 15 per cent. If, however, it goes through the no entry load route, the return would be Rs 27.5 lakh.

If at the end of 10 years, the investor decides to pull out this money from the fund house and invest in another fund house, he will have to pay an upfront load of Rs 60,530 on investing Rs 26.9 lakh and still continue with the monthly load through the SIP. Multiply that by four in a 40-year-long investing cycle and the sum is not insubstantial. Sebi has stipulated that the loads collected by the AMCs for each scheme will have to be maintained in a separate account, which may be utilised for meeting the selling and distribution expenses. As per industry practice, the load is normally utilised for meeting the agent/ distributor8217;s commission.

There are two types of loads. 8220;Sales8221; load 8212; also called front-end load 8212; is a charge collected by a scheme when it sells the units. 8220;Back-end8221; load is the charge when the fund repurchases the units.

Sensex rebounds 260 points, NSE up 78

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MUMBAI: The Bombay Stock Exchange8217;s BSE benchmark 30-share Sensex gained 260 points on Wednesday to close above the 14,000 level on revival of buying interest among investors, who were reassured by firmness in the Asian and European markets. The Sensex, which had dipped 438 points on Tuesday on concerns about political instability, settled at 14,248.66, a net rise of 259.55 points 1.86 per cent. The broader Nifty of the National Stock Exchange also bounced by 78.25 points 1.92 per cent to close at 4,153.15.