SEBI makes MF schemes less expensive for investors

PFW Bureau / Feb 1

Securities and Exchange Board of India (SEBI) has realized that the retail investors are the one who are badly hit in a volatile market. And, the Mutual Fund (MF) schemes are safer and better route for the retail investors, specially for the first timers, to participate in the equity market.  Hence, SEBI has taken several steps to reduce the cost of buying MF schemes for the retail investors.

Removal of initial issue  (New Fund Offers) expenses

SEBI said in a statement that currently close-ended schemes are permitted to charge initial issue expenses and not charge entry load. In order to bring in more transparency and clarity to the investors in terms of the expenses charged to them in closed-end schemes, SEBI board in a meeting on January 30 in Mumbai has decided that henceforth, there will not be any provision of charging initial issue expense and amortization of the same.
Presently, the MFs are allowed to amortise upto 6% of the resources mobilized in closed-ended NFOs. All MF schemes shall now meet the sales, marketing and other such expenses connected with sales and distribution of schemes from the entry load. The direct investors including investments made through internet into these schemes will get entry load waiver.
Addressing a conference on the Capital Market organized by FICCI in Mumbai on January 31, SEBI chairman M Damodaran said that the MF route is a better option for the first time investors in the market. The regulator is working over-night to reduce the cost of closed-ended NFOs. “We are working on the fee and cost structure of initial issue expenses which will be announced soon”, he said.

Waiver of entry load

Earlier this year, the retail investors have received a new year gift from SEBI. The regulator has waived entry load (fee) for the direct applications, like investments made through online, effective from January 4, 2008 on the open-ended schemes.

SEBI said that no entry load shall be charged for the direct applications received by the Asset Management Company (AMC), applications received through internet, submitted to AMC or collection centre, investor services that are not routed through any distributor or agent or broker. The circular has been made applicable for investments in the existing schemes effective from January 4, 2008 and in new schemes launched on and after the said date.

It shall be applicable to additional purchases done directly by the investors under the same folio and switch-in to a scheme from other schemes in case such a transaction is done directly by the investor. AMCs have been directed to inform the unit holders in case of a change in load structure in accordance with the regulations in this regard.
Market experts said that the new norm will encourage online investments in the MF schemes as the investors can save the entry fee ranging from 1% to 2.5% in the open ended schemes.

SEBI has already launched investor-education campaign throughout the country. The regulator is of the opinion that the market education can help the retain investors to avert any kind of loss in their investments.