The Indian asset management companies while complying with the capital market regulator, the Securities and Exchange Board of India’s recent guideline, slashed exit loads and investment holding periods across all unit holders with effect from August 24.
The SEBI's August 7 guideline stated that there should not be any distinction among classes of investors on the basis of investments made, while charging exit load.
AMCs now have kept upper limit on exit load to the extent 1% with exit load period capped at one year from the date of allotment of units.
The exit load of 1% and exit load applicability period of one year at HDFC Asset Management Company remained unchanged across its equity and balanced funds with the exception that the AMC removed the investment slabs for charging exit load.
Only exception at the fund house was its floating rate fund where the AMC increased the exit load from earlier 0.5% to 3.0% with exit load applicability period from six months to 18 months. The AMC removed the investment slabs in case of fixed-income funds keeping the load and period unchanged.
Franklin Templeton Asset Management Company reduced the exit load applicability period from three year to one year with the exit load being capped at 1%.
The objective behind maintaining exit load at 1% also rolls back to the SEBI’s mandate on abolishing entry load structure in order to bring transparency in investment practices within the mutual fund industry.
The capital market regulator then said that of the exit load or continent deferred sales charge, a maximum of 1% of the redemption proceeds shall be maintained in a separate account for paying distributors’ commission and other marketing and selling expenses.
The new entry and exit load structure has certainly brought a lot of rejoice to mutual fund investor. Since, there is no entry load in place (from August 1), the cost of buying a fund has become relatively very cheap, as compared to earlier practice of charging entry load to the extent of 2.25%.
Since, the exit load applicability period has also been slashed to one-year in case equity funds and three-six months in case of fixed-income funds with no difference on the basis of amount of investment, mutual funds has clearly become a level playing field for all.
However, given the fact that mutual fund as an investment option is not quite known among retail investor community and also distributors’ commission significantly eroding post the SEBI’s entry load move, we will have to see how the new norms will actually benefit the end investor.
Certainly, the AMCs will have to work more hard to reach out to retail investors carrying the message of the SEBI’s new norms, however, how far AMCs could reach is also question given the fact that their higher operating expenses?
