Sebi may review ‘entry load’

The proposal by the finance ministry to ask the Securities and Exchange Board of India to consider re-introduction of ‘entry load’ in order to boost the mutual fund industry, has raised concerns among investors bodies and others. The entry load which ranges from 1.5 per cent to 2.5 per cent is the amount paid as commission to distributors and was banned by Sebi in 2009 as it led to many malpractices with distributors pushing and churning products to earn commissions. They were also non-transparent.

V.T. Gokhale a mutual fund advisor says “this would be an anti-investor move, if it happens. One has nothing against distributors being paid commissions but the asset management companies should pay it from their own funds. They should increase their assets in order to increase their revenues.” One of the reasons that Sebi banned entry loads was because of nontransparency. Many funds charged small retail subscribers heavier entry loads than they charged the large subscribers, he said.

Waqar Naqvi CEO Taurus Mutual Fund said there is a combination of factors for the mutual fund industry not doing well and the ban on the entry load is one of them. “It was a turning point at a time when the economy was already doing badly. But I don’t think that reintroducing the entry load is the solution, though you cannot ignore it.

The Sebi chief, U.K. Sinha had said that inflows had increased despite folios going down. While admitting that the spread of the mutual fund business was not upto expectations he said that Sebi had started consultations with all the parties on the basis of the feedback would form a committee to consider how the MF business could be developed.