Sebi imposes Rs 100 transaction fee on MF investments

New investors will now have to cough up an additional Rs 150 for investment of Rs 10,000 and above in mutual funds, while the charge will be Rs 100 for existing investors, the Securities and Exchange Board of India (Sebi) said today.

Investors are already paying a commission in some cases, besides up to 2.5% of their investment towards expanses of fund management.

The Sebi, after its board meeting, said that in order to help mutual funds penetrate into retail segment in smaller towns, the distributor would be allowed to charge Rs 100 as transaction charge per subscription. No charge can be made for investments below Rs 10,000.

An additional amount of Rs 50 can be charged to first time mutual fund investor, it said.

Transaction charge would be imposed on transactions other than purchases/subscriptions relating to new inflows, and direct transactions with the mutual fund.

For Systematic Investment Plans (SIPs), the transaction charges can be recovered in 3 or 4 instalments, it added.

"It [transaction fee] is some way to compensate the distributors, who may have lost interest in the distribution of mutual fund products. The idea is that distributors have to be incentivised," Sebi Chairman UK Sinha said.

Experts said this move is seen as back door imposition of entry load, a fee charged to the investors at the time of their investment in a MF scheme.

MF distributors had been demanding re-introduction of entry load, which was abolished by Sebi in 2009. Then the board was headed by CB Bhave. Distributors have been complaining that their business has taken a hit since then.

Sinha, who was earlier heading UTI Mutual Fund as also the industry body Amfi and took charge as chief of the market regulatory body in February, agreed to set up a panel after repeated representation by fund houses.

The panel, comprising Sebi's whole-time member Prashant Saran and representatives of the mutual fund industry and one investor association, was set up in April and submitted its report to Sebi's mutual fund advisor committee recently.

Thereafter, a proposal was made to the Sebi board for implementing a transaction fee.

A major portion of the entry loads used to go to the fund distributors as their commission payments and the abolition of this charge has left them un-incentivised, the fund houses have agrued, although the decision was welcomed by investors.