It’s a fee you pay whether or not you use the service. Every time you invest in a mutual fund you pay an entry load of 2-2.5% of the invested amount.
The fund houses pass on this fee as commission to distributors— agents, brokers or banks through whom investors normally route their applications. Of late, a small but growing number of investors have started directly investing in fund schemes, without using the services of a distributor. But these investors had to pay the entry load, nonetheless.
Last fortnight Securities and Exchange Board of India (Sebi) proposed waiving off the load for investors who apply directly to a fund house. Online investments too would be eligible for waiver. The rationale for charging entry load is simple: a distributor spends resources to educate the investor and rope in investment so he should be paid for his services. In the past six months, retail investors have put in nearly Rs 6,000 crore into equity-based mutual funds.
That’s almost Rs 150 crore paid in commission. You may not have bothered about entry loads till now because the returns from equity-based funds were so huge. Why care about 2.5% when profits are about 50-60%? After all, it is just about 5% of the gains.
But those days of phenomenal returns may be over now. Experts believe equities will give about 15-20% returns this year. Some even say the returns could be negative. So a 2.5% load will pinch more.
“In rising markets, the losses of returns due to entry loads were hardly visible but in falling markets, loads would add to the losses,” says Devendra Nevgi, CEO and CIO of Quantum Asset Management Company. A pioneer of the direct-toinvestor approach, Quantum Mutual Fund does not charge any entry load and does not use distributors to sell its schemes.
Sebi’s proposal, however, does not mean that distributors will get completely bypassed. After all, the 6,000-odd mutual fund distributors and one lakh agents have been instrumental in making mutual funds the popular investment choice of small investors. The move is meant to only cut out the distribution fee for those who don’t use distributors.
Though the proposal will surely lower cost for fund investors, but for it to really benefit large number of investors it will have to be followed by a few more initiatives. Most fund houses offer online facilities. But not every investor has access to a computer or even a Net banking account. And visiting the fund’s investor centre is not always convenient.
Since a lot of investors will be looking to avoid the entry load, fund houses will have to find ways to make the direct channel easy. Or else retail subscription to mutual funds could fall, defeating the very purpose of the proposal. Often distributors push products that offer them high commissions, regardless of their suitability.
This mindless and costly churning could end if there is no one pushing the investor into a decision. Sebi has invited responses to its proposal. You can send in your opinion to email@example.com by 12 September.
Babar Zaidi with Priya Kapoor
Planning to shift to an online brokerage to better manage your investments? What are the factors to keep in mind before you zero in on your stock-trading partner? According to a survey of investors by media buying firm Starcom, the main factors considered by Indians are security, brokerage charges, research and analysis provided by the portal, and accessibility. The online option was exercised by almost half of the 10,000 respondents.
Furthermore, it is still a man’s world when it comes to stock trading—85% of the estimated 8 million investors are men. However, more women seem to rely on research (71% against 63% for men). Younger investors are more cost-conscious, 52% in the 18-22 age group said brokerage is the prime factor compared to 25% in the 58-plus bracket.
For a prospective property buyer these are the worst of times and also the best. Worst, because property prices have risen rapidly in the last few years and interest rates are at a high too. And it’s the best of times because in a depressed market like this you also stand a good chance of landing up a good deal—in a resale as well as the primary real estate market.
As developers face the danger of their projects finding no takers, they are extending freebies like easy finance, free parking, bearing of the registration cost, to lure customers.
While some like Nirmal Builders in Mumbai are ready to pay stamp duty charges, others are willing to dish out free furniture, bathroom fittings and consumer durables, and some are even willing to negotiate on prices.
Traditionally, a 5-7% discount was offered on lump-sum payments but now, developers have resorted to giving discounts on the rate per sq ft of the property, further reducing its cost.
Some builders are going to town advertising, “No EMI till possession”. What it means is that the developer is ready to pay either the entire EMI or a part of it (the interest component) of the home loan that the buyer has taken, right till the possession of the house. Exemption of preferential location charges (PLC) are also offered in some cases.
If these sops aren’t exciting enough, try this one. A high-rise tower coming up in Mulund, a Mumbai suburb, has two rates: one quoted by the developer and the other by agents. If that is not too unusual, hear this: there is actually a difference of Rs 1,000 per sq ft between the two rates. How is that? “In many of these upcoming buildings in the suburbs, the developers are selling properties through agents at a lower rate. The agent just tells interested buyers that it is a distress sale,” explains Sandeep Sadh of mumbaiproperty-exchange.com, an online consortium to help bring the city’s buyers, sellers, builders and brokers together.
But how long will the party last? “Large developers may hold on to their rates for some more time. But smaller ones have already started offering lower rates in some areas. After sometime, even big developers may be forced to offer lower rates,” says a senior banker. The moral of the story: bargain hard if you are buying a house.