As most of you must be aware, MFs usually charge an entry load of 2.25% when we invest in any of their equity schemes. This load is primarily used to pay the distributor’s commissions.

However, this has certain drawbacks, such as

1. The load is levied even if someone were to invest directly without going through a distributor.
2. An investor has to pay a fixed cost, irrespective of the quality of the service offered by the distributor.

Therefore, the SEBI is now thinking of doing away with this load in case someone invests directly [say through the internet or submitting the application at the MF’s office/ service center/collection center] without routing it through any distributor. This would save them 2.25% cost that they have been paying so far. Thus, for every Rs.100 invested, now the entire Rs.100 would become part of their corpus and earn returns as against Rs.97.75 earlier.

Predictably enough, there have been voices both ‘for’ and ‘against’ the proposal.

Cheers

• Investors, of course, are quite happy with the proposal as they would save some costs.
• Those distributors, who have focused on giving the right advice and good service, also welcome this proposal.

Concerns

• Distributors, who are likely to be worst affected by this, have voiced their concern especially those who merely focused on form-filling.
• Even some AMCs feel that now they would have to open more no. of offices/collection centres. This will increase their establishment costs as both manpower and office space is scarce and expensive. Thus large MF companies may benefit at the cost of the small MF companies.
• The growth of the MF industry may be affected as fewer players would be interested in marketing/distributing MF products.
• This will encourage rebating or pass back of the commission.

Any change in policy, especially an important one like this, is bound to change the way the business is done. So what’s going to be the likely impact?

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