To revive mutual funds, Sebi to meet stakeholders

posted: Mumbai, Fri May 18 2012, 00:46 hrs
Sandeep Singh

In what looks like a beginning of a comprehensive review exercise in the mutual fund (MF) industry, the Securities and Exchange Board of India (Sebi) is in the process of meeting all MFs, distributors and other stakeholders to discuss ways to revive the flagging industry, including the issue of bringing back entry load.

Removed by Sebi in August 2009, entry loads were charges (up to 2.25 per cent) that mutual funds collected at the time of investment from the investor. “Sebi is meeting all mutual funds, banks and all distributors and every possibility to revive the industry is being discussed, including bring back the entry load in some form,” said the head of a leading mutual fund, who did not wish to be named. “There have been discussions around introducing entry load for investments up to Rs 5 lakh and leave the big ticket out of it as that will lead to churning. Another way being discussed is that investors should write on the investment form if they want to pay a certain per cent as commission and the same will be paid to the distributor by the asset management company from his investment amount,” said the mutual fund CEO.

Under this exercise, Sebi, through a letter on April 29, also called upon the industry bodies of financial advisors — FIFA and IFA Galaxy — and the wholetime director, Prashant Saran, met them on May 3, 2012 in a bid to understand the issues relating to distributors, reach of mutual funds beyond top cities and on ways to overcome the problems faced by the sector.

“We have asked Sebi to bring in variable entry load as distributors need some incentive. We have also asked if that is not possible then entry load should be allowed at least in the tier-2 and tier 3 cities,” said Ramesh Bhat, president, IFA Galaxy. “When we met Mr Bhave in 2009, he told us that nothing will be done on entry load now and review will happen only after three years.”

IFA body also asked Sebi to make a uniform minimum investment amount for all schemes as various mutual funds have different amounts set and also suggested that all scheme names should have prefix or suffix that sufficiently clarifies if it will invest in large cap, mid cap or small cap, so as to make it absolutely clear for investors.

Falling investments and folios has been a growing concern within the mutual fund industry. While the sector has seen its average AUM come down from Rs 748,591 crore in March 2010 to Rs 670,930 crore in March 2012, the number of folios have fallen from 4.79 crore to 4.64 crore in the same period.