Ahmedabad, Sep 12 (UNI) Consumer Education and Research Centre (CERC), Ahmedabad, has welcomed the Securities and Exchange Board of India's (SEBI) proposal to waive the entry load for direct application to mutual funds and congratulated the Board on its pro-investor move.
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 investors' collective cost, the CERC said in a release here.
In all equity schemes, Asset Management Companies (AMCs) are allowed to charge up to 2.50 per cent to meet management fees and expenses. Of this, typically, around one per cent goes to meet the recurring selling commission to the distributor. Similar to waiving the entry load, the AMCs should also reduce the expenses charged, by at least one per cent per annum in respect of those investors who invest directly.
CERC supports Sebi's move and urges the regulator to withstand the pressure from the Mutual Funds industry which is gearing to lodge a protest. It must be remembered that many funds have their own distribution houses which pocket investors' money through distribution companies. Many distribution companies are connected to the fund and the service that they offer investors is highly debatable.
Not only would the entry load cost be saved for direct investors but also the huge commission the funds charge for shifting from one fund to another can be saved. In fact, this amount is larger than the entry load commission to the distributors and hence Mutual Funds, taking advantage of investors' ignorance or trust, encourage from time to time a shift from existing fund to some other fund, without any real advantage to the investor.