Entry load on direct MF investments scrapped

No service, no load. This, in essence, is the underlying message that Securities and Exchange Board of India delivered today...

No service, no load. This, in essence, is the underlying message that Securities and Exchange Board of India (Sebi) delivered today, when it scrapped entry load on investors buying mutual funds directly from asset management companies (AMC), through their collection centres, offices or internet and not using the services of distributors, agents or brokers.

First reported in The Indian Express, this waiver, which will come into effect from January 4, 2008, will also apply to additional purchases done directly by the investor under the same folio and switch-in to a scheme from other schemes if such a transaction is done directly by the investor.

The industry, after resisting the proposal, is finally welcoming it. “It is a welcome move,” said A P Kurien, chairman Association of Mutual Funds in India (AMFI). “From the standpoint of knowledgeable investors who don’t need distributors advice, it is a move which will help them to save on paying entry load while investing directly.”

“We are glad that Sebi has come out with the circular scrapping the entry loads for direct investments in mutual funds,” said Devendra Nevgi, CEO & CIO Quantum Mutual Fund, which has been operating under this direct investment, no-load platform for the past two years. “It will benefit lakhs of retail investors who have been paying entry loads even though they had invested directly.”

The distributor community, which is under the direct impact of this regulation is also taking it in stride. “We welcome the move,” said Rajiv Deep Bajaj, managing director, Bajaj Capital, adding that this will change the way distributors function. “It will force distributors to upgrade their services. They will have to sell advice.”

It certainly is not the end for distributors as there is a huge market still left unexplored. According to Joydeep Bhattacharya, chief marketing officer, UTI AMC, “This will give multiple options to investors, who can choose the platform they want to use depending on their requirement. Distributors will have to upgrade and invest on training.”

The move is also likely to help the industry evolve on the knowledge front as advisory takes the front seat. “This is the first step headed towards pricing for advisory services,” said Vikrant Gugnani, CEO, Reliance Capital Asset Management. “Through AMFI, we have given our recommendation to Sebi on this.”

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Distributors on their part will have to rework their revenues. “I think fee structure based on the quality of services offered will evolve as the margin that has to be adjusted to the level of services offered,” said Anup Bagchi, executive director, ICICI Bank. “The industry as a whole will evolve as being more knowledgeable in the process,” he added.

No service, no load

• Entry load removed for investors buying mutual funds directly from AMCs, through their collection centres, offices or internet.

• This waiver will come into effect from January 4, 2008

• It will also apply to additional purchases done directly under the same folio and switch-in to a scheme from other schemes if such a transaction is done directly by the investor