May ask SEBI to consider move; experts slam it as anti-investor
The Finance Ministry may advise the Securities and Exchange Board of India (SEBI) to consider measures including re-introduction of entry load to bail out the mutual fund industry. The Mutual Fund Advisory Committee of SEBI is scheduled to meet on July 17.
However, experts feel that rather than bringing back entry load, the effort should be to allow mutual funds to launch pension schemes. At the same time, the Rajiv Gandhi Equity Scheme should be routed through mutual funds, they suggested.
Highly placed official sources said that after the Prime Minister’s directive to resolve issues about the mutual fund industry on Wednesday, the Finance Ministry is getting ready to draw up an action plan.
Re-introduction of entry loads, which will boost income for funds, is one of the key proposals. Since any move in this regard can be made only by SEBI, the Finance Ministry will advise the regulator, one source said.
SEBI banned entry loads from August 1, 2009. This was done to empower the investors in deciding the commission paid to distributors in accordance with the level of services received, to bring about more transparency in payment of commission and to incentivize long term investment.
The mutual fund industry has been unhappy with this. “First of all, introduction of such a move was not correct. Even the world body, though agreed in principle, did not introduce it, but India did,” said a senior fund executive.
But bringing back entry loads is expected to further dampen sentiment, particularly when the markets are down. This will take away the investors to other avenues, he added.
Earlier this month, the SEBI chief Mr U.K. Sinha, had said that various stakeholders have given their suggestion but not about re-introduction of entry load.
In fact SEBI has requested the Finance Ministry that facilities in the recently announced Rajiv Gandhi Equity Saving Scheme should be made available for investment through mutual funds. This will help the investor to reduce the risk, while benefiting the industry.
Echoing the same sentiment, Mr Dhirendra Kumar, CEO of Value Research said, “Rather than pressing for re-introduction of entry load, the Government should facilitate mutual funds to launch pension funds.”
Such a move will help the industry to get long term funds, which will also help the stock market. It is estimated that the mutual fund industry can easily mobilise Rs 50,000 crore through pension funds.
Comments:
1) If abolition of Entry loads was an investor friendly move and was done to empower the investors then the question that needs to be answered is Why was it not resulted into higher investments in to Mutual Funds, instead the assets under management for the mutual funds industry has been going down steadily. 2) Banning of Entry loads has created more problems than it has solved. The mutual fund adviser / agent needs to be compensated in an adequate and fair manner & not be deprived of his legitimate revenue nor is it an opportunity to be pay as little as possible for his services. 3) Why only mutual investors were given this freedom to decide on their agent's compensation? If this was such a brilliant move than such practice should be extended to all investment products & services for eg IPOs, PMS, Fixed Deposits, etc. And finally, SEBI must take stern action against those distributors who are found abusing the entry load mechanism while re-introducing the entry loads.
Bringing back entry load would be anti investor move and will only encourage cheating. As an Investor should have a choice as to how he will select and compensate the advisor, based on the quality of advice. Clearly an investor shouldn't be forced to pay front ended commissions, if he is not using an advisory services, but using services to execute the order
Now if you allow 10 class pass guy to do distribution how can you expect him to charge FEEs from his clients.System is not addressing the issue.Sebi has banned entryload but did nothing to improve the quality of advisors.till we have such agents and advisors moving in the markets banning of entry load will always be futile exercise and will never reap benefits.If regulator have intention to help investors then it needs highly educated and professionally qualified person advising MF who can charge fees and provide proper advisory.MF distribution should be confined to only PGs/CFAs/CFPs/MBA from premier institute/CA/CS/ICWA so that client get some value addition and then they pay fee for it.Till NISM certification is there SEBI should revoke the BAN as it will hurt industry and current distributors and we have seen it has done no good for industry since aug 2009.
Savings Bank is first investment where you need to keep ten thousand as minimum balance and get three percent interest. But the Bank is gaining as its Cash is higher which it can lend at thirteen percent, no hue and cry is made to fight for rights as per for RBI way. But the same amount invested in Mutual fund can earn you higher returns tax free. We look only at commission charged not the services provided by the advisor who need to keep his family happy.
Banning of entry load was not the solution at that point of time when Mr.C.V Bhave introduced ban on entry load.First of all it is necessary to ascertain what will make MF industry to benefit.MF industry need to cover many small cities to garner investment.It can only be possible through IFAs.Then where is the incentive for them to do that.They cannot do charity.Yes, there may be some cases that unscrupulous distributors tried method of churning folios.But to what extent.If out of 100 advisors/distributors 10 are doing it then is it justified to penalize remaining 90 distributors for the fault of 10.If we go into the deep banning of entry load has not even help investors except savings of Rs.2/- in Rs.100.But is it really a savings for them.Now they have to come personally to the MF office or Registrar office for any transaction which cost them in money and time.Secondly good advisors use to suggest them good schemes and managing MF portfolios of their clients.Is Rs 2 is more for that
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