Sebi imposes Rs 150 transaction fee on new MF investments

Market regulator the Securities and Exchange Board of India (Sebi) today said new investors would now have to pay an extra Rs 150 for investment of Rs 10,000 and above in mutual funds, while the charge would be Rs 100 for existing investors.

"In order to enable people with small saving potential and to increase reach of mutual fund products in urban areas and smaller towns, it has been decided that a transaction charge per subscription of Rs 10,000 and above be allowed to be paid to the distributors," Sebi said in a circular.

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

Now the distributors would be allowed to charge Rs 100 as transaction charge per subscription. No charge can be made for investments below Rs 10,000.

"As an incentive to attract new investors, the distributor may be paid Rs 150 as transaction charge for a first time investor in mutual fund," the circular added.

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

Sebi further said that the investors would continue to pay upfront commission directly to distributors.

Last month, Sebi Chairman UK Sinha after the Sebi board meeting had said that transaction fee is some way to compensate the distributors, who may have lost interest in the distribution of mutual fund products.

Experts said this move is seen as backdoor imposition of entry load, a fee charged to the investors at the time of their investment in mutual fund 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.

The Sebi said that in the interest of investors, there is a need to regulate the distributors by putting in place due diligence process to be by asset management companies.

The Sebi said the due diligence process may be initially applicable for distributors having presence in more than 20 locations or those who have received over Rs 1 crore commission in a year.