Press Trust of India / New Delhi Jul 15, 2009, 17:35 IST
Mutual fund houses are rushing their NFOs before removal of entry loads becomes effective from August 1, with as many as nine fresh schemes coming out within less than 30 days between June 18 and July 15.
In addition to the entry load removal deadline, fund managers are also trying to cash in on the improvement in the sentiment in the stock market in the past three months and investors are also queuing up for their offers, analysts said.
On June 18, market watchdog Securities and Exchanges Board of India(SEBI) asked mutual fund companies not to deduct marketing and distribution charges from investment made by subscribers.
"The profitability of the Asset Management Company (AMC) would come down as they cannot pass on the marketing and distribution charges to their customers after the entry load removal. While lower commission may also dissuade distributors from marketing MF schemes," Taurus Mutual Fund Managing Director RK Gupta said.
As many as nine fund houses, including Religare, JP Morgan and Shinshei, have come up with new fund offers (NFOs) after Sebi announced its intention to remove the entry load.
An entry load is a charge levied by a MF when an investor steps in, to meet their marketing costs and distribution commissions. And as the entry load is deducted from the investment made by the investor, his total invested amount gets reduced to that extent.
"Fund houses are trying to mop up as much funds as possible before the abolishing comes into effect. Investors are also investing in schemes as they are worried that big fund houses would not come up with much of NFOs after August 1," SMC Capitals Equity Head Jagannadham Thunuguntla said. As per the entry load on MF schemes, distributors get 2.5 per cent commission called entry load on business generated by them from asset management companies.
Usually, if an investor enters any MF schemes via a broker it attracts entry load of around 2.25 per cent, while the broker gets from an asset management firm a commission between 2 per cent and 2.25 per cent or depending on the performance of the distributor.
The funds that have been launched since June 18 are the Sahara Super 20 Fund, Quantum Equity Fund Of Funds, Franklin Templeton Build India Fund, DSP BlackRock World Energy Fund, Religare Business Leaders Fund and JP Morgan JF Greater China Equity Offshore Fund.
Of them, the initial subscription period for three — DSP BlackRock World Energy Fund, Religare Business Leaders Fund and JP Morgan JF Greater China Equity Offshore Fund - will end on July 31.
The unholy rush of the holier than thou fund managers is understandable.However cleverly packaged these offerings are the fine print disclaimers and escape clauses that investors agree to will remain and in fact get more complexly written up.It is like saying "I warned you not to trust the markets that are invariably unpredictable"after a miserable performance and with falling NAV's that make deep holes in the management fee based on NAV.
I think it is time that we stop wasting so much paper about the potential dangers and the innocence of these experts and ask SEBI to come up with some standard simple write-ups,perhaps consulting AMFI.
With funds galore and information on performance lagging ,like after the horse has bolted some comfort should be available to investors who are mostly not well informed or savvy.
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