The mutual funds advisory committee is also looking at more reforms. The advisory is recommending the asset management companies to lower the fund management fees from the present. The fund houses currently charges 1.25% as asset management charges for the first Rs 100 crore garnered by a scheme, and 1 per cent thereafter. It is also recommending changes in the net asset value calculation.
2009 has been a year of changes for the mutual fund industry. The regulator is trying to make investment in mutual funds easier and transparent for the investor community. This year two-fold change has been bought about. They include the abolishment of the entry load and listing on the mutual fund on the exchange. As we know, that SEBI had earlier abolished initial issue expenses and mutual fund schemes were allowed to recover expenses connected with sales and distribution through entry load only. Further, investors making direct applications to the mutual funds were exempted from entry load.
In August 2009, SEBI made huge change benefiting the investors by abolishing the entry load completely.
As per the SEBI circular – Entry Load for the schemes, existing or new, of a mutual fund has been removed. The investor would pay the commission upfront to distributors directly. The distributors should disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds, which they are distributing or advising the investors.
This is applicable with effect from August 1, 2009 on investments in mutual fund schemes (including additional purchases and switch-in to a scheme from other schemes), redemptions from mutual fund schemes (including switch-out from other schemes), new mutual fund schemes launched and systematic Investment Plans (SIP) registered on or after August 1, 2009.
The benefits to investors
Earlier, the distributor would receive 2.25% entry load every time you would invest in mutual find. With every investment made by you, the distributor would get richer. However, with the new rule, the payment of the commission would be mutually decided by the investor and the distributor. Further, this would also lead to the distributors giving proper and unbiased advice to you, as his motive is no longer which fund is providing higher commission, but the kind of service he is providing the investor. Further, when you invest through the distributor, you can pay the distributor by way of cheque for his services.
Further as per the circular, the distributor has to now disclose a chart, or table, stating what commission is earned from what AMC for investments into specific mutual fund schemes. However, this is not required in case an AMC decides to give the distributor a certain percentage for generating a certain level of AUM in a specified time period, for the AMC as a whole and not any particular scheme.
SEBI has been taking various steps to empower the investors in mutual funds by way of more transparency in the loads borne by the investor so that the investor can take informed investment decisions.
SEBI recently came out with another major change in the mutual fund industry by launching a platform to enable buying and redeeming of MF units on the exchange.
Investors can now buy or redeem the open ended mutual fund on NSE through a broker or an online trading account just like one buy and sell stocks. SEBI has introduced trading in open-ended mutual fund through the National Stock Exchange (NSE). Investors can also opt for physical delivery of units and need not have a separate demat account. Further, the investor can opt for the online platform offered by the NSE and BSE or the offline way i.e. through distributors or directly through MF houses. For the investors who do not aspire to transact in mutual funds through this system has the facility of holding units in the physical form and transact as they have been doing till date.
How will investors benefit?
This will widen the reach of mutual funds and also give convenience to mutual fund investors. This will open the doors to one stop shop i.e. have a common broker for equities and mutual fund. Further, this initiative also reduces the lengthy paper work. Through the trading way, investor just needs to call the broker or opt for the online broking account.
Until now, the investor had to depend on the distributor to submit the application before 3 pm to avail the same-day net asset value, NAV, if which is the cut-off time for equity fund. Any delay in submitting the form leads to the investor’s money being invested at the next day’s NAV. With the online buying and selling, the investor can himself buy or sell the mutual fund till 2.59 pm by sitting at home or office.
Still not clear: More details on charges or the brokerage charged is awaited. Also currently the systematic investment plan (SIP) and systematic transfer plan (STP) is not offered as of now by this platform. An investor can only make a lump sum investment. It is not yet sure when these facilities will start.
More reforms on way
The mutual funds advisory committee is also looking at more reforms. The advisory is recommending the asset management companies to lower the fund management fees from the present. The fund houses currently charges 1.25% as asset management charges for the first Rs 100 crore garnered by a scheme, and 1 per cent thereafter. It is also recommending changes in the net asset value calculation. At present, Crisil does a mark-to-market valuation for unlisted non-convertible debentures. The regulatory body is planning to rope in another agency. If the two valuations differ, the regulator plans to mandate an average of the two.
In the long run, these changes will not only boost the Rs 7.23 trillion Indian MF industry, but also be very beneficial for investors as it will be a lot more convenient, easy, transparent and investor friendly.
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