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 listed on its official website on Wednesday.
However, this waiver by Sebi would be specific to equity MF schemes
Currently, all investors irrespective of whether they come through a distributor or directly are required to pay an entry load around 2.25 per cent of the money invested, which goes towards paying the brokerage or commission of the distributor.
Even as 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. But, a sizeable number of retail clients do make investments on the basis of advice by distributors.
Welcome move
As such, MF industry feels that it may once again revive the practice of ‘pass back’ where distributors shared a slice of commission money with the investor. In this context, Birla Sun Life AMC Chief Mukul K.Gupta told Deccan Herlad: “Directionally, it’s a welcome move. But, today only a small portion of investor money comes through the direct route.” Echoing similar thoughts, SBI Mutual Fund Chief Marketing Officer R S Srinivasan Jain said “The proposed step will only help savvy investors who are financially literate and do not need a financial advisor, but for others a distributor is of great help as he helps in making an informed choice.”
This move of Sebi if implemented could force many shady distributors to clean up their act, avers Mr Sundaram BNP Paribas Mutual’s Sanjay Santhanam adding: “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.”
Churning in funds
The market regulator has been making efforts to contain the influence of distributors in the financial system as it believes these intermediaries have been responsible for the large scale churning in funds.
A fund manager also pointed out that this practice was banned by Sebi in 2002 under the Amfi model code of conduct for agents but has apparently bounced back in the industry. A sizeable number of fund houses also feel that as the internet penetration in the country being low and the former will have a difficulty in setting up offices across the country, one cannot tick off the importance of the role played by distributors. In a way, distributors are bridging the gap and also augurs well for the financial inclusion in the country.
