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Mutual fund houses will now be allowed to dip into their exit load balances termed ‘liabilities' in the books of their schemes (and not included in the net asset value), and use it for selling and marketing expenses.
These expenses would include the distributors' commission, said a circular put out on Wednesday by the Securities and Exchange Board of India (SEBI).
While most fund officials declined official comment on it, some believe that this could be an attempt by SEBI to bring the distributors back into the mutual fund business. The ban on entry loads effective from August 2009 had led to many distributors exiting the business altogether, much to the consternation of mutual funds (which are a ‘push product').
“It is possible that this is a well-thought out move by SEBI to bring distributors back into the fold,” said a senior mutual fund official.
This is the first mutual fund–related circular issued by SEBI, since Mr U.K. Sinha took up the mantle of SEBI Chairman. The mutual fund industry had been adversely affected by the ban on entry load and profit margins had thinned out.
Mr Sinha, ex-Chairman and Managing Director of UTI Mutual Fund, one of the biggest and oldest fund houses in the country, was expected to bail out the mutual fund industry from the entry load quagmire it had found itself in, in the entry-load ban era since August 2009.
SOME CONFUSION
The circular specifies that “not more than one-third of load balance as on July 31, 2009, shall be used in any financial year including the current financial year 2010-11.” The unutilised balances can be carried forward, said the circular.
However it does not talk about unutilised balances being credited back to the scheme.
Here, it must be remembered that a circular passed on June 30, 2009, clarified that the balance of the unutilised exit load expenses had to be credited to the scheme immediately.
“By not specifying anything, the circular has created some confusion for fund houses. The money rightfully belongs to the investors and should go back to the scheme,” said a regulatory expert.
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