Sebi has stuck to its word and banned the entry load on direct investments in mutual funds (without going through an agent/broker/collecting bank). It’s a welcome step as it instantly adds about 2% more to the capital invested by an investor, and hence the overall returns go up significantly in the longer run.
All investors who either submit applications at the AMC office, an investor service center or through the internet are eligible for the no-entry load. It is applicable from January 4, 2008 for new and additional purchases and for switching transactions. This is perhaps the best New Year gift that Sebi could have given mutual fund investors. It remains to be seen how mutual funds and distributors react to the situation.
Mutual Funds have traditionally met expenses out of the entry load, which included distributor commissions. It was also not clear if some investors, retail especially, were bearing the entry load for the large investors, who got away with lighter or no loads. The current system puts some pressure on the mutual funds to reform the system. A lot depends, however, on how many retail investors actually step out of their homes, visit the nearest AMC office/investor service centre (usually in the central business district, for example Fort in Mumbai), and drop their application forms.
Or, how many of them are comfortable using the internet for investments. Hopefully, they should realise that this move is for their own benefit, and use direct investments for their mutual fund investments. If they do, Sebi’s efforts will not have gone waste.