Insights

Is the entry load back?

July 29, 2011 . Srikanth Meenakshi

(Back to blogging after a while)

SEBI held its board meeting yesterday and made some pretty significant decisions. Although the decisions pertaining to the takeover code is garnering all the headlines, what matters most to us here at FundsIndia are the decisions relating to mutual funds.

There were quite a few of them actually. Deepak Shenoy of CapitalMind has a great (as usual) summary of the decisions here:

http://capitalmind.in/2011/07/sebi-mf-commissions-back-takeover-norms-changed…

Please read the article to get a good birds eye view.

In this space, I will comment specifically on a couple of the decisions:

Rs. 100 or Rs. 150 transaction fee on MF transactions:

SEBI has decided that they will allow distributors to charge upto Rs. 100 as a transaction fee. Per my understanding, it means:

1. This charge is optional – that is a distributor might choose to charge it or not

2. It will come out of the investment money (no second cheque) of the investor

3. It will apply only to investment transactions and only when the amount is higher than Rs. 10,000

4. For SIPs, it will collected in installments over the first few payments.

5. It cannot be charged for direct to MF transactions.

This is being viewed in different quarters as a re-introduction of entry load or MF commissions.

I don’t agree for the following reasons:

1. Previously, ALL distributor transactions were subject to a load (declared at scheme level) regardless of what the distributor wanted. Now, it is optional. A distributor could choose to charge it, while another does not. It really lets the investor choose the channel/distributor to go with should they make this a criterion for decision.

2. The amount is variable upto a max ceiling as opposed to previously when the load was uniform across the board.

3. It is in terms of rupees and not basis points which again is a significant departure from the previous model.

At the end of the day, this should be seen as a pretty investor friendly move by SEBI in the sense that it affects the investor very little:

1. They will always have options to go to where they don’t need to pay this charge

2. Even if they go with an agent who charges, at the end of the day, it will likely work out to a pretty small percentage of their investment (unless they fall prey to an agent who insists on investing in different peoples names and/or multiple tranches of Rs. 10,000 to maximize revenues).

For FundsIndia customers, no such worries need apply. We will not be charging this fee. Period.

Distributor regulation

SEBI has also said that large, national distributors will be subject to stricter oversight and regulation. We wholeheartedly welcome this move. At FundsIndia, we have been doing business in the most diligent, ethical manner from a centralized office with strict conformance to regulations. Any move to regulate this space of the market/industry will work out in our favor. Large national financial institutions with hundreds of points of presences and free-for-all sales techniques are the ones to be afraid of this decision.

Apart from these two, the other things that caught our eye were the promise of KYC regulation (making it uniform and less cumbersome) and about the infrastructure debt funds. In both cases, we need more details to get more excited about, although the words in press release sound promising.

Happy investing!

70 thoughts on “Is the entry load back?

  1. Awesome that you won’t be charging this. Well done. I also agree that it’s not a big deal, but it is a commission. There’s no problem there because the amount is so small, and it does cost that much just to do the paperwork – it costs more, but luckily the AMCs pay a reasonable commission out of their cut.

  2. FundsIndia Team,That’s a great investor friendly step from you to not charge any distribution fees. Though I know if a professional proves any investment related advice he is eligible to charge some fee. However, in MF industry only about 10-20 percent advisers are real adviser, rest all are just doing a business where they think about the commission before advising a product. Such people not just the independent agents, even the ones from corporate houses are the same. And just for handing over my form to the AMC the fee should not be more than Rs.10I feel most of Fundsindia users invest on their own without any real advice from Fundsindia so ideally it good move to keep this service free. However, I would not mind for pay a certain fees if I am availing any advisory services from Fundsindia.

  3. Nice to know that fundsindia wont charge the fee. Kudos.can u add that in column that sebi allowed to charge if investment is greater than 10,000 per year?

  4. Good to know that FundsIndia continue to be free…. Was about to check the same via Query but then saw this blog.Kudos for this…

  5. Great move. This is new regulation is only going to make Fundsindia more competitive in the MF Distribution space !

  6. Great move. This is new regulation is only going to make Fundsindia more competitive in the MF Distribution space !

  7. I was thinking of joining FundsIndia and SEBI announcement made me think -‘should I continue with direct MF transactions.’ Great to hear that FundsIndia will not be charging. I can now happily open the account here.

  8. It is really great. you want to prove that yo are interested in investor and make money ethically. Keep it up. It is great to give up something you can earn. I wish you are attempt a great success. But the same time I know that there can not be any free lunch. I hope more people profit from investing through you.

  9. Thanks!!!!!! Fundsindia. I had recently moved my SIP from icicidirect.com to fundsindia to save on the SIP cost, which i was incurring on a monthly basis. I was worried & wanted to enquire what happens now?Great to see your Proactive blog & addressing the concern. Way to Go 🙂

  10. Great to hear about this even before the query was asked. Is it clear that you will continue to have your source of revenue from ‘trail fees’ paid out of the annual fund management fees? If this is not the case your business wouldn’t be sustainable right?

  11. M also relieved to know you won’t be charging any fee as i invest in MFs through fundsindia.com. Thanx Mr Meenakshi!

  12. This is a welcome initiative from Sebi in the sense that, those distributors who are based in the 2nd and 3 tier cities find it very difficult to meet ends by making a living by selling mutual fund units after the no load regime. For these distributors the clients are spread across may be from one town or village to the other etc. the cost of conveyance itself will be higher than the incentive they get from the investment they get from their investors. This apart in these areas the client do not pay any money for the service offered. That way this is a welcome sign.

  13. It is really great. you want to prove that yo are interested in investor and make money ethically. Keep it up. It is great to give up something you can earn. I wish you are attempt a great success. But the same time I know that there can not be any free lunch. I hope more people profit from investing through you.

  14. Thanks!!!!!! Fundsindia. I had recently moved my SIP from icicidirect.com to fundsindia to save on the SIP cost, which i was incurring on a monthly basis. I was worried & wanted to enquire what happens now?Great to see your Proactive blog & addressing the concern. Way to Go 🙂

  15. Great to hear about this even before the query was asked. Is it clear that you will continue to have your source of revenue from ‘trail fees’ paid out of the annual fund management fees? If this is not the case your business wouldn’t be sustainable right?

  16. Hello Srikar, Yes, we do hope that our current business model, unaffected, will continue to keep us running 🙂 Thanks, Srikanth

  17. Awesome guys. You prove yet again that FundsIndia is one of the best Financial Services organization in India. Keeping the customer at the forefront is an attribute I wish others can learn from you!

  18. Great Great Move – make my decision to move to Fundindia from another known online platform all the more sweeter!

  19. Thanks for enlightening. This commission is better than that received by Agents of Small Savings Schemes(SSS) as they do not get any trail commission. Many SSSAgents share their commission with investors. Those MF Agents who do not give any advisory services but only provide clerical and courier services the present rate of commission appears to be adequate

  20. Excellent FundsIndia!! Good to know you won’t be charging this fee. I can vouch that your team conducts business in the most diligent and ethical manner. I have never hesitated to contact you for my financial queries and each time your advise has been perfect. This shows your commitment to your motto “Enriching INDIA, one investor at a time.” Hats off to you!!

  21. Kudos Srikanth. Its a brave and bold move to announce like that. I had recommended FundsIndia to couple of my friends and they were skeptical about it because of this new charge structure. Now i hope it will bring peace to their mind.

  22. After the abolition of entry load, how much distributors/agents/IFAs are getting by way of commission(upfront, trailing,etc) and other charges?

  23. To all with real kind words of support: Huge thanks! 🙂 Hello Mr. Gadre, Distributors are getting between 0.5-0.75% as upfront and a similar percentage as trail fees on equity funds. It is lower by about half in case of debt funds(only trail, though), and pretty negligible for liquid funds. thanks, Srikanth

  24. Thanks for enlightening. This commission is better than that received by Agents of Small Savings Schemes(SSS) as they do not get any trail commission. Many SSSAgents share their commission with investors. Those MF Agents who do not give any advisory services but only provide clerical and courier services the present rate of commission appears to be adequate

  25. What is the total amount paid as commission by AMCs in one yaer (let us asy in 2010-11) ? How many total number of registered distributors are there? Just would like to get an idea of the amount involved!! Is it really as big a thing as made out to be by the Distributors and also by SEBI?

  26. WHY such a big cry on paying a service charges or brokerage to a finacial advisor.Pls think how ULIP products has cheated the enier nation still going around selling but poor MF people is attacked for it. Ulitmately now i am forced to learn basic computrer to do transations no advisor is interested to visit or service.

  27. Hi Needed your advice regarding Reliance Growth fund in my protfolio, its now 11% down !!! Its not performing very well please advice should continue or discontinue it! Also comment on Reliance regular savings folio i have !!!Please suggest alternative if any and the way to move to it!!Thanks

  28. Hello Avinash, Reliance Growth is a small and mid-cap folio that is subject to more volatility than the average market indices. As such, in this bear market where the index is at a 14 month low, this notional negative return is to be expected. If you are not comfortable with this notional loss, it tells you something important about your own risk tolerance. You should seek more conservative options for investing such as balanced funds or large-cap funds. Reliance RSF Equity is a multi-cap fund that has a broad market exposure and is more volatile than large cap and balanced funds. You can consider either Reliance RSF Balanced or Reliance Quant plus retail (large cap) funds as alternatives. Thanks, Srikanth

  29. Hi Srikanth,Thanks for the prompt reply, so as per your advice i understand that a negative return should be expected!! Now if i plan to be invested in above mentioned folios for long time say 10 years how does that sound to you!!! I was actually refering to that when i asked you the question? Are these folios good to continue for long term?

  30. Hello SrikanthThanks for responding on queries related to the SEBI regulation on min transation fee…Just out of curiosity my query is, thou you may mention that you aewe a online platform, operational costs are minimal/etc.. as a service provider are you able to really manage other associated costs (people/infra/technology investments) at thsi meagre 0.5%… My question is out os curiosity perspective 🙂

  31. Hello Anand, Thanks for the curious question. The key is volume. Our projections – from customer base, operational costs and revenue stand point work out pretty well. Srikanth

  32. FOR INVESTING IN SCHEMES OF HDFC MUTUAL FUND (No Entry Load / Upfront Commission will be charged)PLEASE CONTACT : AMIT SURPURIYA : 9850873688EMAIL : asurpuriya@gmail.comKSHITIJ FINANCIAL SERVICES – PUNEhttp://kshitijfinancial.hpage.comEquities | Mutual Fund | Debentures – NCD | IPO | Fixed Deposit | Medi-Claim | Delisted Shares

  33. FOR INVESTING IN SCHEMES OF HDFC MUTUAL FUND (No Entry Load / Upfront Commission will be charged)PLEASE CONTACT : AMIT SURPURIYA : 9850873688EMAIL : asurpuriya@gmail.comKSHITIJ FINANCIAL SERVICES – PUNEhttp://kshitijfinancial.hpage.comEquities | Mutual Fund | Debentures – NCD | IPO | Fixed Deposit | Medi-Claim | Delisted Shares

  34. M also relieved to know you won’t be charging any fee as i invest in MFs through fundsindia.com. Thanx Mr Meenakshi!

  35. Good to know that FundsIndia continue to be free…. Was about to check the same via Query but then saw this blog.Kudos for this…

  36. This is a welcome initiative from Sebi in the sense that, those distributors who are based in the 2nd and 3 tier cities find it very difficult to meet ends by making a living by selling mutual fund units after the no load regime. For these distributors the clients are spread across may be from one town or village to the other etc. the cost of conveyance itself will be higher than the incentive they get from the investment they get from their investors. This apart in these areas the client do not pay any money for the service offered. That way this is a welcome sign.

  37. I was thinking of joining FundsIndia and SEBI announcement made me think -‘should I continue with direct MF transactions.’ Great to hear that FundsIndia will not be charging. I can now happily open the account here.

  38. Hello Srikar, Yes, we do hope that our current business model, unaffected, will continue to keep us running 🙂 Thanks, Srikanth

  39. After the abolition of entry load, how much distributors/agents/IFAs are getting by way of commission(upfront, trailing,etc) and other charges?

  40. What is the total amount paid as commission by AMCs in one yaer (let us asy in 2010-11) ? How many total number of registered distributors are there? Just would like to get an idea of the amount involved!! Is it really as big a thing as made out to be by the Distributors and also by SEBI?

  41. Kudos Srikanth. Its a brave and bold move to announce like that. I had recommended FundsIndia to couple of my friends and they were skeptical about it because of this new charge structure. Now i hope it will bring peace to their mind.

  42. Awesome guys. You prove yet again that FundsIndia is one of the best Financial Services organization in India. Keeping the customer at the forefront is an attribute I wish others can learn from you!

  43. Excellent FundsIndia!! Good to know you won’t be charging this fee. I can vouch that your team conducts business in the most diligent and ethical manner. I have never hesitated to contact you for my financial queries and each time your advise has been perfect. This shows your commitment to your motto “Enriching INDIA, one investor at a time.” Hats off to you!!

  44. Great Great Move – make my decision to move to Fundindia from another known online platform all the more sweeter!

  45. WHY such a big cry on paying a service charges or brokerage to a finacial advisor.Pls think how ULIP products has cheated the enier nation still going around selling but poor MF people is attacked for it. Ulitmately now i am forced to learn basic computrer to do transations no advisor is interested to visit or service.

  46. To all with real kind words of support: Huge thanks! 🙂 Hello Mr. Gadre, Distributors are getting between 0.5-0.75% as upfront and a similar percentage as trail fees on equity funds. It is lower by about half in case of debt funds(only trail, though), and pretty negligible for liquid funds. thanks, Srikanth

  47. FundsIndia Team,That’s a great investor friendly step from you to not charge any distribution fees. Though I know if a professional proves any investment related advice he is eligible to charge some fee. However, in MF industry only about 10-20 percent advisers are real adviser, rest all are just doing a business where they think about the commission before advising a product. Such people not just the independent agents, even the ones from corporate houses are the same. And just for handing over my form to the AMC the fee should not be more than Rs.10I feel most of Fundsindia users invest on their own without any real advice from Fundsindia so ideally it good move to keep this service free. However, I would not mind for pay a certain fees if I am availing any advisory services from Fundsindia.

  48. Awesome that you won’t be charging this. Well done. I also agree that it’s not a big deal, but it is a commission. There’s no problem there because the amount is so small, and it does cost that much just to do the paperwork – it costs more, but luckily the AMCs pay a reasonable commission out of their cut.

  49. Nice to know that fundsindia wont charge the fee. Kudos.can u add that in column that sebi allowed to charge if investment is greater than 10,000 per year?

  50. Hello Avinash, Reliance Growth is a small and mid-cap folio that is subject to more volatility than the average market indices. As such, in this bear market where the index is at a 14 month low, this notional negative return is to be expected. If you are not comfortable with this notional loss, it tells you something important about your own risk tolerance. You should seek more conservative options for investing such as balanced funds or large-cap funds. Reliance RSF Equity is a multi-cap fund that has a broad market exposure and is more volatile than large cap and balanced funds. You can consider either Reliance RSF Balanced or Reliance Quant plus retail (large cap) funds as alternatives. Thanks, Srikanth

  51. Hi Needed your advice regarding Reliance Growth fund in my protfolio, its now 11% down !!! Its not performing very well please advice should continue or discontinue it! Also comment on Reliance regular savings folio i have !!!Please suggest alternative if any and the way to move to it!!Thanks

  52. Hello SrikanthThanks for responding on queries related to the SEBI regulation on min transation fee…Just out of curiosity my query is, thou you may mention that you aewe a online platform, operational costs are minimal/etc.. as a service provider are you able to really manage other associated costs (people/infra/technology investments) at thsi meagre 0.5%… My question is out os curiosity perspective 🙂

  53. Hi Srikanth,Thanks for the prompt reply, so as per your advice i understand that a negative return should be expected!! Now if i plan to be invested in above mentioned folios for long time say 10 years how does that sound to you!!! I was actually refering to that when i asked you the question? Are these folios good to continue for long term?

  54. Hello Anand, Thanks for the curious question. The key is volume. Our projections &#8211 from customer base, operational costs and revenue stand point work out pretty well. Srikanth

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