Industry was awaiting clarity on funds mobilised through exit and entry loads.
In less than a month of taking charge as the chairman of Securities and Exchange Board of India (Sebi), U K Sinha has given mutual fund industry a reason to smile.
In a move which has brought clarity to the MF industry, Sebi has allowed the fund houses to use the funds mobilised (load balance) through exit and entry loads before the entry load ban came into existence on August 1, 2009.
Chief Executive Officers in the industry, said it was not that industry was not allowed to use the load balance, but due to less clarity on the subject from the regulator, fund houses did not lay hands on the funds collected.
The load balance can now be used by the fund houses for marketing and selling expenses including distributor’s and agents’ commissions. However, there is a catch. “Not more than one-third of load balance as on July 31, 2009 shall be used in any financial year including the current financial year,” said a Sebi note.
| SEBI CLEARS THE AIR |
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Prior to August 2009, MFs charged both entry and exit loads on its investors. However, post entry load ban fund houses could charge only exit load. These load balances are maintained as liabilities in the books of the scheme and are not included in the net asset value (NAV).
Now, load balance needs to be segregated into two accounts. One to reflect the balance as on July 31, 2009 and the other to reflect accretions since entry load ban became effective. After using one-third of the funds in the first account, the unutilised balances can be carried forward.
Sebi, however, added that the accretions after July 31, 2009 can be used by MFs for their marketing and selling expenses without any restrictions. But industry observers said the amount, thus, mobilised is not a very large sum as only exit load has contributed to it which is just one per cent of the redemption value.
Men in the industry said that on Wednesday’s note has brought clarity which is a relief. “We now know how much to use and when to use. So far, industry was simply carrying forward the amount,” said a CEO.
Chief Marketing Officer, of a large fund house, said, “We had been paying commissions to the distributors from our own pockets. Now, since Sebi has clarified it, we can use the unutilised funds for developing the markets further.”
However, independent experts on the industry said the move will prove advantageous to the bigger and older fund houses which have sizeable chunk of money as their load balance. According to Dhirendra Kumar, CEO of Value Research, older fund houses are likely to use this fund in a big way to capture market share. He added that newer and smaller fund houses might not be having large funds available with them.
The domestic fund industry has over 40 players with an average assets under management of less than Rs 7 lakh crore. Reliance MF, HDFC MF, Birla Sun Life, UTI and ICICI MF are the top fund houses managing over half of the industry’s assets.
