With no entry load, MF distributors eye HNIs

With market regulator Securities and Exchange Board of India (Sebi) abolishing 'entry load' for investors from August 1 2009, several distributors have slightly altered plans to include high net-worth individuals (HNIs) in their targets rather than retail investors. With the ban on entry load or commission an investor pays while purchasing units of a mutual fund, the earnings of distributors will take a huge hit, and they would want to compensate for this by targeting HNIs.

According to mutual funds players, this will be the distributor strategy for at least the first few months starting August 1.

Distributors feel HNIs will provide appropriate remuneration for their advice, while it will take few months for retail investors to decipher with their distributor a 'non entry load' fee structure for advice rendered.

Kanwar Vivek, CEO of Birla Sun Life wealth management says, "The move to end the entry load structure is one of the ground-breaking events for the Indian mutual fund (MF) industry. We are planning several strategies that can attract investors after August 1. However, for the first few months, we will be targeting HNIs along with retail investors. We are also preparing what commission we can charge from retail investors, as this step has been taken to help retail investors investing in MF."

Last month, Sebi had banned entry load from August 1 in all the MF schemes. A senior official from one of the leading asset management companies (AMC) said, "This move will have a huge impact on the distributors and independent financial advisor (IFAs). However, we might not see any major New Fund Offer (NFO) in the coming months, due to this ban on entry load. It will take at least a year for things to settle, but in the long term, this can be very helpful for retail investors."

In the month of June, MF assets under management (AUM) stood at Rs 6,70,993.13 crore, a rise of 4.98% or Rs 31,863.31 crore compared to Rs 6,39,129.81 crore in May. Sebi has directed AMCs to carry a suitable 'disclosure' on application forms that upfront commission will be paid by investors directly to the distributors based on their assessment of various factors including the service rendered by the distributor.

On 'exit load' paid by investors, Sebi said that a maximum of 1% will be maintained in a separate account by mutual fund companies to pay commission to the distributors. It directed distributors to disclose all commissions payable to them for different competing schemes of various mutual funds.