VARIABLE MF LOADS
SEBI proposes a variable load structure for funds
Have you ever bought mutual fund (MF) schemes from more than one broker, satisfied with the advice of some but not so much with those of others, and yet paid all of them the same fees? If you think it was unfair, the Securities and Exchange Board of India (Sebi) is trying to set the wrong right. In a proposal that can usher greater transparency in the way funds are sold in India, Sebi has proposed that entry loads be made variable. At present, you pay the full entry load (2.25 per cent) if you buy units through an agent or nothing at all if you buy funds directly from your ME MFs charge entry loads and pass them to the agent as his fees. Sebi feels that the investor does not have control over the fees that the agent gets, even if his advice or the quality of his services is ordinary. Moreover, large investments, typically, Rs 1 crore upwards, do not attract any loads. This, Sebi felt, had got nothing to do with the service standard of the agent, which was the reason for levying the entry loads in the first place. It has sought to abolish this system and, instead, let investors, big or small, determine the load they would like to pay to their agents.
Under this system, Sebi has proposed two options, of which one would have to be selected. In the first option, the investor and the agent would have to jointly agree upon the commission (entry load) the latter would get, and write it on the application form with both parties signing it. The load would be adjusted later against the net asset value (NAV) at which the investor would get his units allotted. The second option would involve the investor writing out two cheques, one for his investment amount, and the other for the commission he would want to pay to his agent. Additionally, Sebi has also proposed that agents transparently disclose the commissions that various MFs pay them to sell their schemes. Sebi has kept its doors open for suggestions—it is expected to take a decision on this within six months. If you have a take on this matter, email to Sebi at mfcomments@sebi.gov.in by 6 March. Or you could simply email us; we would be happy to pass on your comments to Sebi.
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