Sebi to allow variable entry load for MFs

The Securities and Exchange Board of India (Sebi) is likely to allow mutual fund houses to charge a variable entry load for their schemes, providing investors freedom of choice based on the services they get from a distributor.

Industry sources said Sebi will hold a final round of discussions with the Association of Mutual Funds in India (Amfi) and other market participants next week on the issue before a circular to this effect is put out.

Entry load is charge levied by a mutual fund when an investor steps in. At present, open-ended mutual fund schemes charge between 2 and 2.5 per cent of the amount invested as entry load to meet their marketing costs, distribution commissions etc.

In their last meeting, Amfi and other market participants had suggested that a variable load structure should be introduced, which would give the investors freedom of choice, the sources said.

The variable entry load structure for mutual funds is prevalent in developed markets such as the United States and Australia. In India, a variable fee is slowly being introduced in the stock broking industry.

The variable entry load could vary from zero to 2.25 per cent depending on the services required by the customers. The customers will be informed about the charges and it will be calculated depending on the quality of the service.

"Sebi is working on the entry load fees. We have suggested a variable load structure," said A.P Kurien, chairman of Amfi.

The sources said Sebi will be shortly taking a final call on whether there should be a total elimination or a variable entry load structure.

In August, Sebi had brought out a concept paper proposing to do away with the entry load charged by mutual funds through the direct route. The proposal had suggested that mutual fund investors would not have to pay entry load for applications filed online or through the asset management company's collection centres.

The proposal was open for public comments till September 12, 2007.

The services provided by an agent or a distributor can include a full financial plan for investors, a mere product suggestion, risk-return calculation, research reports, or facilitating the monthly or quarterly statements.