SANJIV SAINI
IL & FS INVESTMART
CHANDIGARH

1. There is an option to the investor to invest directly, without incurring entry load. She has to walk in to the respective mutual fund office or do it on line. Fund houses will not levy any entry load directly or indirectly. Only investor will have access to the information.

2. Present change is with respect to the investment collected through accredited mutual fund distributors (accredited by SEBI) where the distributor (also called broker or advisor) now has to collect his fee for advisory/other services directly from the investor. Broker/advisor/distributor has access to the information regarding the investments apart from the investor.

3. Entry load, as the name suggests, is the load levied on the investor at the time of investment. So if someone invests Rs.100/-, net of entry load only Rs.97.75 gets finally invested.

I agree with you that this is a question of transperancy and honesty in giving the advise and services.

Regards,
Narendra

Thanks for the update.

But I had a query relating to the abolition of the entry-load by SEBI. Prior to this declaration by SEBI, could individual investors invest directly in mutual funds? If they could, then am I right to assume that direct investment in such MF schemes is not dependant upon the coming nto force of of the circular that abolishes the ‘entry load’?

Continuing on the assumption that they could invest directly in MFs, from what I can make out, SEBI probably banned the levying of an entry load since investors who were investing directly without the aid and advise of a distributor were being silently charged the entry load by the MFs anyway. Is that so? And if it is, then is that the cause for the enactment of the ban?

I think the issue is transparency. The fact that even investors who were investing in MFs with the aid of distributors were being charged an amount that was discounted from the original amount invested by the individual investor, despite the fact that the amount being invested in the stock market was shown as the original amount is unfair. Even if you make a healthy return, the investor has received that return on approx. 97-98% of the amount he had origiannly invested. If the MF holds out the original amount as the amount invested in the market, then it should also distribute returns that are commensurate with that original amount or alteast make it clear that a separate fee is chargeable to the individual investor for the utilisation of the services of the distributor.

Also, could you explain the difference between an accredited MF adviser and a distributor. Isn’t the distributor the entity who brings in the investment for the MF? Does he work alongside the MF? Or does he work independently, say as an expert on MF schemes, who then advises the individual investor to invest in a particular scheme. Because both conditions seems to be different. So is the ban on the entry load only a ban on indirect payment to distributors who are related to and bring in investment for MFs or is it also applicable to MF advisers who are independent in nature.

A lot of queries there. Because this is quite hard to understand. Hope you will elaborate upon them. Thanks.