Mutual Funds

Mutual funds: Finance Ministry may ask SEBI to re-introduce entry load

PTI New Delhi | Updated on July 01, 2012

In order to promote the sagging mutual fund industry, Finance Ministry may ask the SEBI to consider re-introduction of commission for brokers known as entry load.

“We will meet representatives of mutual fund industry and SEBI officials and will advice them to consider measures including re-introduction of entry load to revive the fortunes of mutual fund industry,” a senior finance ministry official said.

The ministry officials will meet mutual fund industry representatives and SEBI officials on Monday.

The entry load -2.25 per cent commission paid to distributors of mutual funds - was banned in 2009 by former SEBI chief Mr CB Bhave, who felt that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios. The ban, however, led to drying up of inflows into mutual funds.

The meeting comes close on the heels of Prime Minister Dr Manmohan Singh’s statement on Wednesday that there were problems facing the mutual fund industry that needed to be resolved.

The Mutual Fund Advisory Committee of SEBI is scheduled to meet on July 17 and may take a call on the issue.

As per industry insiders, ban on entry load has resulted in lower incentive for distributors, who usually push a product in their bid to earn higher commissions.

However, lesser investment in mutual fund products and other saving instruments have prompted higher money flow to gold, which has pushed up the current account deficit of the country due to rising imports of the commodity.

To restrict the investment flow to gold, which is considered as a dead investment, the government is now planning to make mutual fund schemes attractive for retail investors.

Meanwhile, retail participation in equity related schemes have come down in the recent past on the back of volatility in stock market.

According to SEBI data, equity funds lost 4.86 lakh folios in the last two months i.e. April and May in 2012.

While there were 3.76 crore folios as on March 2012, which fell to 3.71 crore in May 2012, equity assets also fell 6 per cent from Rs 1.82 lakh crore to Rs 1.70 lakh crore during this period.

According to industry experts, re-introduction of entry load along with good performance of share market is likely to increase retail investors’ participation in the mutual fund schemes.

Published on July 01, 2012

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