No entry load for direct MF investments

No entry load for direct MF investments
23 Aug, 2007, 0307 hrs IST,Gaurav Pai , TNN

Econ Times


MUMBAI: Mutual fund (MF) investors will not have to pay entry load if they invest directly with fund houses instead of routing the investment through brokers or distributors, according to a Sebi proposal. This would be primarily relevant for equity MF.

Currently, all investors irrespective of whether they come through a distributor or directly are required to pay an entry load which is around 2.25% of the money invested. This charge goes towards paying the brokerage or commission of the distributor.

Though fund managers have largely welcomed the decision, they feel the proposed move will only benefit investors who are smart enough to pick the right scheme from the universe of MF offerings. Today, many retail clients depend on distributors for investment advise. Sections in the industry feel that this may once again revive the practice of ‘pass back’ where distributors shared a slice of the commission money with the investor.

“Directionally, it’s a welcome move,” said Birla Sun Life AMC chief executive Mukul K Gupta. But, today only a small portion of investor money comes through the direct route, he added.

Sebi has been trying to reduce the influence of distributors in the financial system as it believes these intermediaries have been responsible for the large scale churning in funds. Sanjay Santhanam of Sundaram BNP Paribas Mutual says the move if implemented could force many shady distributors to clean up their act.

“An investor will only go to an intermediary if he is getting value. This move will serve as a wake up call to not-so-clean agents,” he said.

“The proposed step will only help savvy investors who are financially literate and do not need a financial advisor,” says SBI Mutual chief marketing officer RS Srinivasan Jain. “But for others a distributor is of great help as he helps in making an informed choice,” he adds. The impact, he thinks would be mixed.

A distributor who did not wish to be quoted suggested that if the proposal is implemented ‘rebating’ of ‘pass back’ could make a back door entry. This practise, quite customary at one point, was banned by Sebi in 2002 under the Amfi model code of conduct for agents.

The distributor also said that fund houses would find it difficult to set up offices across the country, specially since the internet penetration in the country is very low. “There will always be an important role for the distributor,” he said.

Fantastic move, if it passes. Some of the funds pay upto 6% in commission to the agents.
I am doubtful if it will be implemented, a lot of big people stand to lose a lot of money if the entry loads are removed.
On the other hand, the MFs will mop up a massive slice of money which would otherwise move into more secure havens.
Any ideas when this proposal is to be cleared? I'll watch this one with interest.

i agree with pasha this is gr8 hope it works out thanx saint

If the above move is implemented, in fact most of the people will prefer only MF rather than other investment channels.

Any news on this or has it just been totally forgotten?

Hello

How many of think it is more sensible to do your investment through establised names like icicidirect.com or sharekhan from the comforts of your home with no paper work at all than to approach AMCs directly to save Entry load ??

Thanks

Jeet