SEBI opposes re-introduction of entry load

Indian capital market regulator Securities and Exchange Board of India (SEBI) has expressed its disagreement to finance ministry in bringing back entry load, the commissions paid by the asset management companies to distributors, on grounds that the investors would not be benefited.

Earlier, the commissions to distributors and marketing expenses were met by the fund house by charging an entry load of 2.25% from investors. In 2009, SEBI banned the entry load, which dried up inflows into mutual funds. As a result, in the past two-three years commercial interest of distributors has come down, and they are not motivated to sell mutual funds. And the AMCs asset under management (AUM), the money which is entrusted by investors to fund managers, is reported to have been remaining stagnant for about two years.

As an attempt to boost sagging asset management industry, the finance ministry had asked SEBI to consider bringing back of entry loads, but the suggestion was obstructed by the market regulator stating that it is an unfriendly move to the investors. In November 2009, the MF industry had AUM of Rs 8.21 trillion compared to Rs 6.92 trillion at the end of June 2012.

SEBI has asked the government to modify a scheme introduced in the 2012 budget, which offers tax breaks to investors buying stocks for the first time, so that the investments could be routed through equity mutual funds.