Though market regulator Sebi needs to be congratulated for scrapping entry load in mutual fund (MF) schemes giving investors the flexibility to choose what they pay to distributors, it may be too early for investors to celebrate. Asset management companies (AMCs) are looking at compensating distributors by hiking exit loads, say industry sources.

Another setback for small investors who have invested in systematic investment plans (SIPs) of MF houses is that they will be required to pay entry load under Sebi’s new norms if they started their plan before August 1, 2009.

“AMCs can, according to the rule book, charge up to 7 per cent of the redemption amount as exit load from an investor. This is a steep figure and will pinch investors heavily,” says Mumbai-based MF industry tracker Vijay T Gokhale. “Though it is impractical for any fund house to charge such high exit load in a competitive market, every player is waiting for the other to take the lead. Once some big fund houses raise the exit loads across their schemes other players might act against market dynamics and instead of lowering their exit loads to get more customers, will also jump on to the bandwagon.”

Distributors will be attracted to sell products of those fund houses who compensate them well. “There is no impact of the Sebi regulations on exit loads. Exit loads will continue to be levied on specific fund schemes as per the offer document and subject to revision by the AMCs. Please review the exit load applicable on your investment before you choose to redeem any units as certain schemes may now attract exit loads even if they earlier did not do so,” says leading MF distributor ICICIdirect.com on its website.

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