SEBI has initiated the move to allow investors be charged with a fee while they invest in Mutual Funds. Distributors can be charged Rs100 per transaction fee per subscription. Those who are first time investors need to pay Rs50 extra. For small investors, whose investments do not exceed more than Rs10000, no charges will be applicable.
What does this mean to you as an investor?
With the abolishment of entry load, most distributors lost interest in selling MFs since they no longer gave them any benefit of the transaction. They thus, turned towards selling of Ulips or other traditional insurance policies, where they were benefited by high commission. This led to the loss in the market share of investors who have a low-mid income slab. With the advent of the transaction costs, the distributors are sure to make some money while your savings grows over the years.
Apart from the savings point, you as an investor, will be made aware of the various opportunities that you have available even if you are of a lower income group. The transaction fee will not exceed 1-1.5% of the total value of the transaction. Distributors will advise you the various avenues available for your savings to grow and allowing you to fulfill your KYC requirements with your particular distributor.
Things you should be aware of:
In order to churn commission flows from your end, distributors might advise you to churn your portfolio frequently. Or provide you with solutions where he gets the opportunity to earn commission by structuring your portfolio in a way that can benefit your distributor. For example, if you want to invest Rs1lakh in mid caps, your distributor may entice you to invest Rs10000 in 10 different mid cap schemes, wherein he makes a commission of Rs 1350 extra. As a prudent investor it is very important for you to analyze such tactics and be in a position to question the distributors change e in investment decisions. It is very unlikely for you to require a credit card loan or a personal loan to fulfill your financial requirements if you have opted for the right distributor and are saving with a fund house that has its objectives matching to yours.