• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books
• Gallery

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Suresh Parthasarathy

Research Bureau With SEBI making public the responses received on its discussion paper inviting comments on mutual funds’ entry load issue, it becomes quite clear that distributors are strongly opposed to the suggestion.

According to a SEBI statement in a board meeting on June 18: “An analysis of the responses received from the distributors, AMC and individuals revealed that 93 per cent did not favour variable load, 2.8 per cent were in support of variable load in application form (first option), 0.7 per cent favoured the two cheque system (second option) and only 3.5 per cent of respondents favoured the variable load without indicating any choice of option.”

Of the total responses, 94.5 per cent of the distributors were not in favour of variable load. In case of individuals, 88 per cent were against variable load. Despite this being a crucial issue, AMCs were by and large mute spectators with only three AMCs replying. Of these, two were against the variable load and one favoured the concept.

Only 11 responses were received to the issue of disclosure of commission. Of these, six favoured the disclosure and the rest were against that.

The mutual fund body, AMFI, took varying stances on the issue in 2007 and 2009. In October 2007, commenting on direct applications, it stated that variable load is the most suitable proposal and would usher in a new architecture in distribution business. In March 2009 it took the view that given the extremely depressed market situation, the variable load concept should not be introduced immediately.

It suggested two models. Instead of introducing a variable load concept in isolation, this should be part of multiple share classes allowed from mutual funds. Under one plan, variable load would be mutually agreed by investors and distributors and exit load/CDSC (contingent deferred sales charge) and annual recurring expenses would be according to regulations.

Under the alternative, there would be no entry load and exit load/CDSC should be according to the regulations, and annual recurring expenses limit would be uniformly increased by 0.75 per cent across existing slabs.

SEBI’s observations on this issue were: “The present system of payment of commission has led to a lack of control by the investor over the quality of service vis-À-vis the commission being borne by him. This has led to a situation where advices rendered to the investors could be influenced by factors other than investor’s interest. There appears to be a need to empower the investor in deciding the commission paid to the distributors and also to ensure transparency in commissions paid for mutual fund products.”

Some of the other interesting statistics that emerged from the meeting were that based on the gross sales of equity schemes in 2008-09, independent financial advisors account for 33 per cent of the market followed by national and regional distributors and banks at 32 per cent and 26 per cent respectively.

The top 20 distributors, on the basis of total commissions paid upfront and trail, are either banks (11) or national and regional distributors (nine). Of the total commission paid, 27 per cent was paid to the 11 banks and 13 per cent paid to national and regional distributors.

More Stories on : Mutual Funds | Investments

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line