No entry load

Topic: No entry load

Sector: Finance

In India, recently, Security Exchange Board of India (SEBI) has implemented the new guidelines stating that “No entry Load” that is, no entry load for investments made by investors in Mutual funds.

Previously, there was an entry load for equity schemes as up to 2.25% for all the investor.

By charging 2.25% as entry load from the investor, mutual funds has paid commission to the broker (that includes all Individual financial advisors and national distributors) between 2%-2.25% based on the category of the broker.

As per SEBI guidelines from August 1st, 2009, mutual funds should not charge entry load from the investor and by mobilizing business from the investor, a respective broker needs to get one more cheque from them by charging up to 5% from the investor as advisors fee.

Benefits to the investor:

Since there is no entry load, investor can route their investment thru’ any of the broker without entry load charged by the mutual fund.

By routing their investment thru’ a broker, investor can avail investment advice and other services from them.

Since there is no brokerage paid to the broker by mutual fund, the only way to get commission from the investor as per SEBI guidelines is up to 5% by separate cheque from the client and that needs to be disclose in the application form.

Benefits to the broker:

Since its very difficult situation to the brokers and they need to tackle it for next couple of months and they are in force to equip their product knowledge in deep. By providing product knowledge to clients, then only they are able to retain clients under their control.

Brokers are under pressure to build their asset under management (AUM) with different mutual funds.

Steps taken by Indian government:

To cut out the wrong selling by some of the brokers in the market, SEBI setup a committee as Association of Mutual Funds in India (AMFI) and to become a broker to sell mutual fund units, broker should complete the AMFI-Advisors module which is being conducted by National Stock Exchange of India (NSE)

Indian government must aware that by implementing the regulation, they must do lots of meetings, discussion with top layers in the financial industry and lots of research, after that, they coming up with the new regulation.

Officials must have alternate solution if it’s divert to some other situation in financial market. They must aware that lot of small agents and broker firm house will affect.

As of now, the new regulation is getting success across all cities in India and brokers have gets to use of that.

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Note: Above said information is drafted by publisher up to his/her knowledge. This may vary with original.