Entry load in the guise of transaction charge for subscription
Sebi has said that distributors will now be allowed to charge Rs 100 per subscription for investments below Rs 10,000. A first-time mutual fund investor will have to pay Rs 150.
- For a first-time mutual fund investor, an Rs 10,000 investment will entail a fee of Rs 150 or 1.5%. For a regular investor, an Rs 10,000 investment will cost 1%.
- Big-ticket investors will not feel the pinch, as it is a fixed charge. Individual financial advisors, who drive penetration among the masses, will benefit.
- It is an indirect entry load and will affect small investors but will not be enough to incentivise distributors who focus on higher net worth clients.
- The charge cannot be levied on transactions other than those pertaining to new inflows (so SIPs appears to be exempt) and direct transactions with mutual funds. In the case of SIPs, the charge can be recovered in 3-4 instalments. When the circular is issued, more clarity on this front should become available.
AMCs can advise other funds
Sebi has allowed asset management companies to advise other pooled assets such as offshore funds and pension funds.
Impact: This will allow Indian fund managers to manage a bigger pool of assets, and foreign funds can outsource fund management to them.
Mutual funds will have to give more and better disclosures with respect to return on investment, break-up of assets, and fund manager performance
Impact: Investors will get better quality of information, but it also means the quantum of information available will go up. Investors will need to devote more time, as they should, to their MF investments.
Distributors handling about half the assets under management in the country will be covered by a decision to regulator distributors. AMCs will put in place a due diligence process by which distributors will be regulated.
Single-point Know Your Client
A Sebi-nominated Know Your Client process will be introduced, which will be applicable all securities market transcations.
Impact: Investors may have to go through a one-time process to get their KYC done again, but once done, it will simplify future transactions.
Read the press release from Sebi here.