Securities & exchange board of India's latest proposal to waive entry loads on direct applications in mutual funds could change the way investors invest. SEBI has mooted that investors do not have to pay entry load if they invest directly in mf schemes. 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 per cent of investments. This charge is used to pay commissions to distributors.
The proposal has evoked mixed responses from the industry. Some CEOs like Devendra Nevgi of Quantum AMC have welcomed the decision as it is a way to control mis-selling of funds. Others like Vijai Mantri of Deutsche Asset Management feel it's early to get judgmental on the complete episode. Says Mantri: "We can't ignore the fact that distributors have played a role in developing the industry and today many retail clients depend on distributors for investment advice. We have to see to it that the industry growth doesn't slowdown if distributors are sidelined."
Enter without load?
» SEBI proposes to waive entry load for investors investing directly in equity funds.
» The proposal is a move to control mis-selling.
» Distributors will now have to play the role of financial advisors rather than that of a pure commission agent.
» If the proposal comes into practice, it will help investors save money if they go the direct way.
As of now, only a small portion of investor money comes through the direct route. SEBI has been trying to reduce the influence of distributors in the financial system as intermediaries have been responsible for the large-scale churning in funds. However, once the proposal is passed by the regulator, it would be interesting to see if investors come through distributors. Says Mantri: "An investor will only go to an agent if he is getting value." The industry will evolve with professionals like financial planners coming into play, but it remains to be seen how mutual funds act. Mutual fund is a low- cost model and typically fund houses don't invest heavily to set up offices to gather direct clients. Many mutual funds still don't have presence in more than five cities. Yet, for investors who prefer the direct route, the move, if it comes through, will save a tidy sum.