Entry load ban to benefit MFs in long run, say fund managers

After the initial hue and cry following market regulator Securities and Exchange Board of India’s (Sebi’s) ban on entry load from August 1, the mutual fund (MF) industry is gradually coming to terms with the negatives of the move and looking at the positive side of it.

Fund managers admit that in the initial few months, the industry may not escape the adverse impact, but in the long run, the ban will prove beneficial for fund houses as it brings in more clarity for investors.

Making noises over the ban will not serve any purpose, they say, adding that things will settle down in the next six-eight months as fund houses, distributors and investors adapt to the new norms.

Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund, says, “The Sebi move will help demystify customers regarding investments in mutual funds.”

In Thursday’s scenario, the investor is clear that there is no entry load and only 1 per cent exit load on investments in mutual funds, say industry sources. This will help the industry have good inflows in the long run, if not now, they add.

“Simplicity and transparency are the virtues of the mutual fund industry which will only be enhanced after the regulator’s latest move. Unless investment norms are simplified, it’s not an easy task to attract more retail customers,” says the chief executive officer (CEO) of a fund house on condition of anonymity.

Industry experts say that the customer is now more clear about how much he has to pay to the distributor or the advisor. Investors are now empowered and have choices to decide which type of channel they should transact through, they add.

Agreeing to this, another CEO says: “If the industry gets more retail customers as a positive consequence of this ban, hopefully we will see stickier money flowing in, thereby improving profitability.”

AP Kurian, chairman of the Association of Mutual Funds in India (Amfi), had earlier told Business Standard that the “new norms will hit the mutual fund industry initially. But it will be a short-term phenomenon... But once the reality dawns on all the participants that this is the way business is to be done, the industry will pick up.”

At a time when the Swarup committee, fund managers say, has advocated similar regulatory moves for other financial products competing with mutual fund products, a discipline will follow and the MF industry will get a level-playing field.

“I don’t think mutual fund investors have had it so good ever before. His entire investment will now be invested. He will not have to pay any entry load. It’s a great norm from the investors’ perspective,” says Saurabh Nanavati, CEO of Religare Mutual Fund.

As expected, the volume of transactions in equity schemes has declined in spite of an increase in the average assets under management in the month of August.

Fund houses are now paying an upfront fee of 50-100 basis points to the distributors to compensate them for the loss of entry load.