SEBI's NEW YEAR GIFT TO INVESTORS - Waives Mutual Fund Entry loads from 04th January 2008

Securities and Exchange Board of India (Sebi) today barred mutual fund houses from charging entry load from investors who buy the schemes directly from the funds, and not through a distributor, agent or a broker.

The new rule is effective January 4, according to a Sebi circular issued today.

At present, the industry average for entry load is 2.25% of the initial investment. Asset Management Companies (AMCs) selling schemes either through the Internet, mutual fund offices or their collection centres can benefit from the new rules.

"Keeping in mind the interests of investors and to facilitate the growth of the mutual fund industry, with effect from January 4, 2008, investors making applications for investments in mutual fund schemes directly without routing through any distributor/agent/broker i.e. through Internet, submitted to AMC or collection centre/investor service centre would not be subject to entry load," said the circular.

The regulator said the waiver 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.

A CEO of a mutual fund house said this will make life difficult for fund houses most of whom are dependent on distributors to sell their schemes. Though no figures are available, industry officials reckon only 1-2% of their business come through direct sales. This may be 2-3% for HDFC Mutual Fund and others, which have more branch network.

Sebi said the growth of the mutual fund industry in the past years and the technology available for investments has enabled investors to take informed decisions and to invest in mutual funds through Internet and other modes without availing of services of distributors/ agents/ brokers.

"There was an overwhelming response in favour of the proposal by Sebi on waiver of entry load for investors who do not route their mutual fund applications through a broker/ distributor," the regulator said explaining its decision.

The maximum entry load a fund house can charge is 6% while the maximum exit load is 4%. but AMCs cannot charge over 7% from investors when entry and exit loads are totalled.