Ahmedabad, Sep 13 (IANS) Consumer Education and Research Centre (CERC) has urged SEBI here Wednesday to enforce its pro-investor proposal to waive the entry load for direct applications to mutual funds.
It requested the market regulator to ignore opposition to the move by fund houses.
“The proposed move will offer a huge saving to direct investors. The practice of paying large fees and distributing goodies to distributors is always at the investors’ collective cost,” CERC said in a statement.
In all equity schemes, asset management companies (AMCs) are allowed to charge up to 2.50 percent to meet management fees and expenses. Of this, typically, around one percent goes to meet recurring selling commission to the distributor.
CERC said that the AMCs should also reduce the expenses charged by at least one percent a year in respect of those investors who invest directly.
It pointed out that the huge commission the funds charge for shifting from one fund to another could also be saved. In fact, this amount is larger than the entry load commission to distributors.
Mutual funds, taking advantage of investors’ ignorance or trust, encourage from time to time a shift from an existing fund to some other fund, without any real advantage to the investor.
CERC trustee Sucheta Dalal said, “Under the present scheme, while distributors rake in sumptuous earnings for themselves, investors complain of poor service. Since distributors not only succeed in selling products but are also able to get investors remain invested, the fund houses are keen on rewarding distributors in one way or the other rather than focus on the investors who contribute to the funds’ corpuses.”
Dalal told IANS that there can be no objection if an investor wants to deal with fund houses through distributors. However, they should have the option to deal directly with fund houses. There should no compulsion on investors to invest only through intermediaries.
There is an entry load fee of 2.25 percent for direct applications received by mutual funds. In the current arrangement, retail investors pay this fee on their investment. The fund houses use this money for their marketing and distribution efforts. There are about 60,000 mutual fund distributors in the country that will be impacted if the proposal is enforced.