ICICI Pru shows the way, ups exit load on FMPs

In order to plug redemptions, ICICI Prudential Mutual Fund has increased the exit load on some of its fixed maturity plan (FMP) schemes for prospective investors from two per cent to as much as five per cent.

Most debt fund managers, industry sources said, are likely to similarly increase the exit load on their FMPs in order to stem mass withdrawals in the future.

“We have done this to ensure that only genuine long term investors are attracted to our scheme and existing investors are protected,” ICICI Prudential Managing Director and CEO Nimesh Shah said.

According to existing regulations of the Securities & Exchange Board of India, fund houses cannot charge more than six per cent to investors who want to exit before the maturity of the scheme. Most of them had opted for an exit load of 2 per cent. The market regulator is also mulling steps to block exits from FMPs.

The move follows the heavy redemption pressure on the debt portfolios of mutual funds in October. The average assets under management (AAUM) of FMPs stood at Rs 1,27,080 crore at October-end, down Rs 10,718 crore since September. Over 25 per cent of the entire AAUM of mutual funds lie in FMPs.

According to another top debt fund manager, a high exit load can be effective in covering losses whenever there is mass withdrawal in any scheme. “Five per cent is enough for a fund manager to ensure that existing investors do not bear the brunt if he has to sell some debt papers at a discount in case of redemptions,” he added.

ICICI Prudential has increased exit load in its Annual Interval Plan series I, II, III and IV. Apart from this, it has also pushed up exit load to 4 per cent in its Half Yearly Interval Plan series I and II. Its Annual Interval Plan II (Institutional Dividend Option Scheme) and Annual Interval Plan II (Institutional Growth Option Plan) witnessed over 75 per cent redemption in the month of October.