Mutual Funds may become cheaper as Entry load may be waived

SEBISEBI is considering removal of the entry load free of 2.25% for direct applications received by Mutual Funds. This will be a big setback for distributors for these Mutual Funds. In the current arrangement, the retail investor pays this fee on their investment. The fund houses use this money for their marketing and distribution efforts.

SEBI officials advocate their decision by saying that it is in interest of the retail investor. Investors will apply directly to the fund house and the distributor is kicked out of the whole system. Presently, the distributors promote mutual funds as they can make big money from their commissions.
There are 60,000 mutual fund distributors in the country. They will get a big shock by this decision of SEBI. Fund houses will have to employ more staff to handle the work done by the distributors presently.

In addition to this fee of entry load, the distributor also makes money for every year the investor stays invested in the mutual fund. The investor is charged anywhere between 0.40% to 0.75% per annum and this money again goes to the distributor. Investors will be happy by this move of SEBI.

As per industry estimates, if an investor stays invested in any mutual fund scheme for a period of 20 years, the distributor earns nearly 40% of the absolute return on initial investment.

Business News: