Isn’t it ironical that though mutual funds (mf) were originally conceived as a vehicle to canalize the small investor’s savings, large investors usually get a preferential treatment? For instance, entry loads are waived for investment above Rs. 5 crore. On the contrary, the small investor has to pay an entry load every time he invests, and even when he avoids agents’ service and approaches the MF directly. MFs argue that, in the first case, large investments bring economies of scale. But when agents don’t serve you, why should they earn from your investments?
The Securities and Exchange Board of India (sebi) seems to agree. In what is considered to be one of the most investors-friendly moves for the MF investor, no-load options may soon become a reality for investors who approach MFs directly. On 18 August, Sebi proposed introducing of a no-load option and invited public comments the deadline expired on 12 September 2007.
WHY COST MATTERS
Most equity schemes charge on entry load of 2.25 per cent at the time of investment, which they typically pass on to the agent, even if the investor avoids the agent’s services. When compounded over the long run, entry load bite off a chunk from your investment.
For instance, Rs 1 lakh invested equity fund that grows at a rate of 15 per cent over a period of 20 yields Rs. 15,99,829 that load fund would give. That’s a difference of Rs 36,825.
An insider source at Sebi told that consitent reminders to the mutual fund industry about the small investor’s cause have fallen on deaf ears.
“The market give relief to investors who do not avail distributor’s services,” says the source. Although distributors are up in arms against this proposal, we hear that the proposal will be finalized in month.
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