Good news for you, now there will be no entry load for your Mutual fund investments! The Securities and Exchange Board of India (SEBI) has recently abolished entry load for investing in mutual funds.
Good news for you, now there will be no entry load for your Mutual fund investments! The Securities and Exchange Board of India (SEBI) has recently abolished entry load for investing in mutual funds.
Earlier in August 2007, SEBI had directed that Mutual fund investors will not have to pay entry load if they invest directly with fund houses instead of routing the investment through brokers or distributors. Then, fund managers had largely welcomed the decision, however they felt that the move will only benefit investors who are smart enough to pick the right scheme from the universe of MF offerings, but not all.
Now with entry load completely gone from the Mutual funds investments, the benefit will be to all MF investors.The only party loosing out on this decision are Mutual Funds agents and distributor. Fund Managers too does not seem to be happy with the decision.
SEBI’s new guidelines stipulates that investors directly make payments to distributors instead of MF companies deducting it from the investment made in any scheme.
Impact on Mutual Fund Agents and Distributors
Agents and Distributors use to sell Mutual Fund schemes to investors who were required to pay an entry load. This load was around 2.25% of the money invested. Asset Management Company used this charge towards paying the brokerage or commission to the distributor.
With zero entry load, now the Mutual Funds agents and distributors will have to find a new revenue model to operate. Many public and private sector banks were also providing wealth management and investment advisory services to their customers by primarily distributing Mutual Funds and Insurance products as part of there fee-based business. The revenue from these services were coming by way of sourcing commissions from AMCs and Insurance Companies.
Most likely, they will have now have to re-invent their revenue models and start to negotiate a service fee or a commission directly with the Mutual fund investors similar to the brokerage and commissions charged in stock broking and real estate transactions.
Impact on Mutual Fund Investors
In terms of cost saving, this decision might not be very advantageous to the investors, but the transparency factor that this decision brings will be beneficial to the Mutual fund investors in the long run.
Mutual Funds Investors were ignorant of the entry load as the agents and distributors seldom discussed it with the Investor. Further, there was a prevalent practice of commission pass-backs, even though this was banned by AMFI Guidelines & Norms for Intermediaries (AGNI).
Further, agents and distributors used to hard sell schemes to investors which provided better commission payout to them. This was against the very premise of providing sound investment advice. Although, still Agents and Distributors have no obligation to disclose non-cash incentives offered to them by Asset Management Companies for promoting specific mutual fund schemes.
Today, many retail investors depend on distributors for investment advise. Ultimately, the cost of sound financial advice will be levied to the investor but the investor can choose who he wants the advice from and the amount of money that he is willing to pay for the advice. Similar to the model with which some Wealth Managers and Certified Financial Planners work. These CFPs provide financial planning services to individuals for a flat fee, portfolio linked percentage and allow the individual to action the investment advice through any medium. If the investment is routed through them then they charge a small fixed fee plus disclose the amount of commissions they generate from these investments to the customer.
This move from SEBI will certainly help bring out service quality differentiator in the some what disorganized nature of operation of Mutual Fund Agents and Distributors. Though, for some time the Mutual fund investor will have to suffer from a service vacuum caused by this SEBI decision and will have to wait for Mutual Fund Agents and Distributors to recover from this shock and re-invent their service offerings.
Impact on Mutual Fund Asset Management Companies (AMC)
Mutual Fund Asset Management Companies are also worried that this move will force Mutual Fund Agents and Distributors to venture into selling other financial products such as Stock Broking, Insurance, ULIP and Post Office Savings, avoiding Mutual Funds .This will affect their expansion plans in Tier 2 and Tier 3 towns in India.
The challenge posed by the expanding Insurance market and aggressive and often mis-selling of ULIPs and other Insurance products to the same group of Investors by Insurance Agents is also haunting these Mutual Fund Asset Management Companies.
They are also particularly worried of additional charges that might be levied on them by banks in case the investment cheque given by the investor bounces. till now the Mutual Fund Agents and Distributors were the personal connect between them and the investors.
Further, the pressure from Mutual Fund Agents and Distributors are building up on these AMCs and The Association of Mutual Funds in India (AMFI) to take a stand on this issue. It will be interesting to see how things turn out in next few days, but for now the retail investors can rejoice.
PAN may not be mandatory for Mutual Fund SIP
Another important decision that can help investors who wanted to avail the benefits of investing in Mutual funds but could not due to mandatory PAN requirement. Two years back, PAN number was made mandatory for all Mutual Funds investments. PAN was introduced under the Prevention of Anti-Money Laundering Act (PMLA) as a Know Your Customer (KYC) norm.
Now,the government is set to exempt an annual investment of Rs 50,000 or less by investors in units of mutual funds from the requirement of submitting details of their permanent account number (PAN) at the time of investment.
However this relaxation from providing PAN details will only be applicable to investments through monthly systematic investment plans (SIPs). Since all SIPs transactions are routed through electronic transfers from the investor’s bank accounts, money laundering is not an issue.
This move will help in broaden the base of potential investors and can be particularly helpful in bringing retail investors participation in the Stock Market through Mutual Funds.
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One of the most common ways of selecting a mutual fund is to invest with the crowd in today’s hot funds. Mutual Fund
True, but is it the right way to invest in Mutual Funds?
Hi Shweta
This is sanjay Talukdar from Mumbai.
I read your blog, this is very impressive.Please keep adding new content , I have joined the lnked in network also
Thanks Sanjay!
We will definitely continue to post articles that will help our readers manage their personal money better.
I have few questions to you:-
1) "What is Mutual Fund" how many public knows in our country in terms of population?
2)What will Tier-3,4 town,villagers will do? Will they contact with CFP(what is that? from their angel) or CFP will go to villages just like a doctor?
3) For those who have ordinary savings account system account How could they issue brokerage cheques to their agent ?
4)What will be happen if agents are not disclose to investor what commission he is getting from other AMC?
5) Those who don't know about "Mutual Fund" who will educate them? (Though Rs800 crores lies in Govt investor education & protection fund) Why Govt is deaf & dumb regarding this matter?
6)80% money in Mutual Fund is from 10 metro Cities & 20% from rest of INDIA.In what interest an agent will chase behind remaining 80% financially illiterate public if he/she is not remunerate?(Definitely that public will never know the flavor of Mutual Fund)who will go to them?
7)Are you sure that entry loads is going towards agents commission?Have you carefully checked the balance sheets of any equity Mutual Fund Scheme compared with debt Mutual Fund schemes?( I found huge anomaly there)
And lastly:-
8)Why we could not buy/sale shares directly from stock exchange web site? Why a broker needed?Each and every time broker is cutting our pockets with a hefty brokerage and in a long run it is more than 2.25% entry load of a equity Mutual Fund scheme.Do they have powerful lobby & giving bribes to SEBI for shut up mouth regarding this matter?
hi I am sunil Kumar, Investment Adviser under going CFP Course and actively advising Financial Products since last 5 years.
The question you asked are good, relevant and not answerable by any one, even if some one dare to answer them it doesn't make any impact.
The very fact that India Governance and Administration System has failed and miserably managed most of the Schemes it has implemented or tried to do so.
Be it the slogan of Jai Jawan Jai Kisan, Garibi Hato you name it the more schemes the more scandals and in last so many years not a single fundamental problem is solved yet.
We have been successful in creating newer problems, thanks GOD investments and that too MF investment is not a fundamental requirement of people or at least we are not adversely affected by the absence/presence of it.
Thankfully we are still too much engrossed in solving Fundamental rights of Earning wage, Education, Social equality, Casteism etc. that MF investments is spared to not improve and educate those who are not aware of it, hopefully they are not ready for it.
In India most of the population is still struggling to provide for the basic necessity of Roti, Kapada aur Makan. We will take another 50 odd years for it then we will fight for Education, Job and Equality for next 50 yrs or so then may be we may have the need to know about saving for future or investing in Mutual Fund as you have mentioned.
Those who are able to earn and save enough to enjoy this freedom to look at various investments options are lucky and will be provided with best of investment advisory. Kindly contact me at letsgrowrich at gmail dot com.
Jai HO
Let the action has just begun.India post has been collapsed to day.This is just dawn.
what shold a small and medium level ,advisors do ? where were these people when m/fs are not Known to common man and we have Spent lots of hours and energy and precious life time to this industry. to grow At this stage of life , is government is feeling that we should be on rad with our family?Every time when the product reach to public the stategy of government changes and the advisors/agents were suffered.Neither havig fix payments,pensions,accidant benifits while handling investments,mediclaim facilty by amcs nor having stability of future with current working advisory profile the agents and advisors have done afantastic job of expansion. Using the no commission policy the only suffer people are advisors .Neither government officers nor mutual fund amc staff. Is our money comes in eye of these people? have government think of any policies regardig all agents? Is'nt it is a use and throw piolicy?
I think the issue is transparency. The fact that even investors who were investing in MFs with the aid of distributors were being charged an amount that was discounted from the original amount invested by the individual investor, despite the fact that the amount being invested in the stock market was shown as the original amount is unfair. Even if you make a healthy return, the investor has received that return on approx. 97-98% of the amount he had origiannly invested.