Distributors are, however, divided on the issue. Bluechip Corporate Investment Centre managing director J Rajagopalan said, “If an investor knows when and what to buy and sell, he should take this route.” On fears about distributors losing clients and revenues, he said, “Let us see. In my opinion, distributors won’t lose out as they provide advice on which funds to buy.”

Others feel different. “This is a contradiction of existing Sebi rules,” says Bajaj Capital managing director Rajiv Deep Bajaj. “Direct investing with mutual funds without entry loads is tantamount to rebating to investors while Sebi rules debar distributors from rebating to investors. This move will also be detrimental to retail growth of mutual funds as distributors may become unviable.” The measure will help the investor boost returns. If a household invests in a Rs 10,000 per month systematic investment plan (SIP) through a distributor for 10 years, its return would be Rs 26.9 lakh at the end of the period, assuming an average annual return of 15 per cent. If, however, it goes through the no entry load route, the return would be Rs 27.5 lakh.

If at the end of 10 years, the investor decides to pull out this money from the fund house and invest in another fund house, he will have to pay an upfront load of Rs 60,530 on investing Rs 26.9 lakh and still continue with the monthly load through the SIP. Multiply that by four in a 40-year-long investing cycle and the sum is not insubstantial. Sebi has stipulated that the loads collected by the AMCs for each scheme will have to be maintained in a separate account, which may be utilised for meeting the selling and distribution expenses. As per industry practice, the load is normally utilised for meeting the agent/ distributor’s commission.

... contd.