Sebi meet: SEBI cuts maximum exit load on mutual funds to 3% from 5%

The Securities and Exchange Board of India (SEBI) has approved several key measures to enhance investor protection and promote financial inclusion in the mutual fund (MF) industry, following its board meeting on September 12. The regulator outlined its decisions during a press briefing in Mumbai, which included changes to exit loads and incentives for distributors targeting investors in underserved regions.

One of the major announcements was the reduction of the maximum permissible exit load that mutual fund schemes can charge from 5% to 3%. Exit loads are fees levied by mutual fund houses when investors redeem units or switch schemes within a specified period after purchase, typically applied as a percentage of the Net Asset Value (NAV) at redemption. SEBI explained that while the current framework allows a 5% exit load, most schemes charge between 1% and 2%. By capping the maximum at 3%, the regulator aims to strike a balance between investor protection and flexibility for schemes investing in less liquid securities. The exit load structure depends on two factors: the stipulated holding period and the percentage applied to NAV, details of which are disclosed in each scheme’s Information Document (SID) for transparency.

To foster financial inclusion, SEBI reintroduced and revised incentives for mutual fund distributors who bring in new individual investors from B-30 cities (beyond the top 30 cities). These incentives are now applicable only for investments made by new PAN holders. The commission is capped at 1% of the first application amount in case of a lumpsum investment or the total investment in the first year for Systematic Investment Plans (SIPs), subject to a maximum of ₹2,000 per investor.

SEBI also introduced measures to promote gender inclusion in the mutual fund space. Distributors will receive additional commissions for investments from new women investors, computed on the same lines as the B-30 incentives. These revisions encourage distributors to reach previously underserved segments, increasing financial awareness and expanding mutual fund penetration.

The revised incentive structure also addresses past challenges. In 2023, SEBI had suspended B-30 incentives due to irregularities in implementation, where transactions were being split and portfolios churned to claim higher commissions. The regulator’s revamped system now ensures stronger checks and balances, reducing the scope for misuse while supporting inclusive growth.

Overall, SEBI’s measures aim to enhance investor protection, promote financial inclusion, and strengthen the reach of mutual funds across India, particularly in underserved cities and among women investors. By combining regulatory safeguards with targeted incentives, the reforms are expected to drive broader participation, improve transparency, and create a more robust framework for long-term growth in the mutual fund industry.