Sebi scraps entry/exit loads on bonus units

Securities and Exchange Board of India (Sebi) today scrapped loads (entry as well as exit) charged by mutual funds on bonus units and units allotted on reinvestment of dividend.

According to a circular issued by Sebi today, the new rule is as per the recommendations of the working group on standardisation of key operational areas of Association of Mutual Funds in India (Amfi).

Fund managers convert earnings from the scheme into units and distribute them as bonus units to investors. These bonus units were charged entry and exit loads. The logical argument made against charging such loads is that it is investors' money which has contributed to the earnings and that investors are not entering the scheme afresh - so charging an entry load does not make any sense. In case of the dividend reinvestment option, the investor is assigned units for dividend re-invested in the scheme.

Sandesh Kirkire, chief executive officer, Kotak Mutual Fund, said: "It is certainly a pro-investor step by Sebi. After all, it is investors' money being reinvested in case of a dividend re-investment option or even in case of bonus units being allotted. It is worthless to charge loads on these as investor is not making any new investment to get those units."