Funds increase loads to prevent investors' exit

Step taken in view of ban on entry load from August 1

In the past ten days, a number of fund houses have hiked exit loads in their equity and debt schemes.

Many industry experts see this as a measure to deter investors from exiting before the Securities and Exchange Board of India’s (Sebi’s) decision to ban entry load kicks in from August 1.

Around seven fund houses, including Reliance, ICICI Prudential, UTI, Bharti AXA, Birla SunLife, IDFC and HDFC have hiked exit loads by 0.5-2 per cent.

Reliance Mutual Fund revised the exit load from zero to 2 per cent for Reliance Regular Savings Fund, an open-ended scheme, in case of redemptions before one year.

HDFC Mutual Fund hiked the exit load in HDFC Arbitrage Fund-Whole Sale Plan. It will now charge 1 per cent in case of redemptions within a year of the date of allotment. The scheme used to charge 0.5 per cent for redemptions before six months.

Bharti Axa will now charge 2 per cent exit load for investments of less than Rs 5 crore in its Regular and Eco Plan, an equity fund. It used to charge 1 per cent for redemptions before six months. UTI hiked exit loads for 18 equity schemes last week. Birla SunLife, ICICI Prudential and IDFC have also revised loads for specific schemes.

Fund houses said it was a routine move to counter volatility. Debashish Mohanty, country head, retail sales, UTI Mutual Fund, said, “It (the hike) was decided a long time ago, but was implemented a few days back. It has nothing to do with the ban on entry load.”

Market experts said gave a couple of reasons. For one, many funds fear that investors in equity and debt schemes may want to exit during the month and re-enter next month once the entry load is abolished. A hike at this stage would dissuade them from doing so, they said.

Also, since Sebi has allowed them to charge 1 per cent as marketing and distribution expenses, they are preparing themselves for the eventuality.

Vikas Sachdeva, country head (retail sales), Bharti Axa Investment, said, “We revised the exit load because of volatility in the market. As investors were moving out, the new exit load would keep them invested. Many others did the same.”

On June 30, Sebi had issued a circular banning entry load for all schemes. On exit load charged to the investor, a maximum of 1 per cent of the redemption proceeds would be maintained in a separate account that could be used by the asset management company to pay commissions to distributors and take care of other marketing and selling expenses, Sebi said, adding that any balance would be credited to the scheme immediately.