Mixed response to scrapping of MF entry load

The mutual fund industry is divided over the proposal to scrap entry load charged by fund houses on various schemes. One section feels that it will hit hard on distribution business, others say that it will promote online transactions.

Some of the leading mutual fund distributors such as Bajaj Capital, are planning to approach the Securities and Exchange Board of India (Sebi) requesting a "level playing field".

The Sebi on Wednesday brought out a concept paper proposing to do away with the entry load charged by mutual funds through direct route. If the current proposal is accepted, mutual fund investors will not need to pay entry load for applications filed online or through AMC collection centres.The proposal is open for public comments till September 12, 2007.

Mutual fund houses generally use this money for paying distributor's commission. According to market watchers, the proposal is a severe blow to distribution business as customers will flock in for online route because of cost cutting. Distribution channels play a major role in popularising fund schemes and making it accessible for the investors.

"The entire discussion is flawed in concept. Already load charges in India are lowest compared to any part of the world.In abroad it is 6-7 per cent while in India it is just 2.25 per cent. The number of people who access internet is minuscule, so it makes no practical sense. AMCs cannot survive without distribution channels. Only distributors make it sure that the fund penetrates in smaller towns. It is the distribution houses that are bearing the cost of PAN compliance, so basically they play a major role and if implemented it will completely kill the distribution business", said head of a leading MF distribution firm.

Another view prevailing among some sections is that the Sebi wants to promote online transactions. Quantum mutual fund is the only fund in industry to operate without a distribution channel.

Devendra Nevgi, chief executive officer, Quantum AMC said: "We at Quantum have been speaking about reducing distribution costs since our inception. And we are glad that our rallying call is spreading. We are proud that our path-breaking approach could be a harbinger of the future of the Indian mutual fund industry."

Jaideep Bhattacharya, chief marketing officer, UTI Mutual Fund, advocates a co-existence of distribution channels as well as online applications.

"The proposal doesn't mean that distribution channels will be wiped out. Still there are lot of people who need financial advisors. I think in India there is a space for both.There is a need for co-existence of distribution channels as well as online platform.As we are moving towards environment of paperless transactions, this is a much needed step in regard."

A P Kurian, chairman of the Association of Mutual Funds in India, said: "It is good for those who can take decision themselves and don't need a financial advisor. But, yes there is a flip side for the distribution business. We will study and formulate our response to the Sebi."

"It will need a lot of discussion.The matter should be discussed with a committee of AMCs and top distributors.There is still along way to go," said Bhanu Katoch, head of sales and marketing for JM Financial Mutual Fund.