Sebi brings in uniformity on MF load account balance usage

Market regulator the Securities and Exchange Board of India (Sebi) today said mutual fund houses can utilise only one-third of the amount collected prior to the entry-load ban in a financial year, which will bring in uniformity in usage of load account balances.

The regulator had banned MF houses from charging entry-load on their schemes since August 1, 2009. Before this, distributors were getting 2.5% commission from the MF houses when investors purchased such schemes, called entry-load.

"It is essential to bring about uniformity in usage of load balances," the Sebi said in a circular.

The load account balances of MFs would now reflect the balance as on July 31, 2009, while the other would reflect accretions since August 1, 2009.

Experts said the Sebi circular would give clarity to the fund houses regarding usage of load account balances of schemes that were launched before the entry-load ban.

According to the circular, fund houses cannot utilise more than one-third of the balances in the load account as on July 31, 2009, in one financial year.

"The unutilised balances can be carried forward, yet in no financial year the total spending can be more than one-third of the load balances on July 31, 2009," it said.

However, MFs would have freedom to use the accretions in the load account, post the entry-load ban since August 1, 2009.

Commenting on the circular, SMC Globals Head (Research) Jagannadham Thunuguntla said, "Clarity on usage of load account balance will come. That may help MFs operationally."

Fund houses can use the balances in such accounts for meeting marketing and selling expenses, including agent's and distributor's commissions.

Currently, mutual funds charge a commission (exit load) from investors at the time of redemption before a stipulated time.