MFs tweak exit load structure with an upward bias

Investors will have to pay higher fees or stay invested for longer periods

Investors redeeming mutual fund units might end up paying higher fees, as most fund houses have revised the exit load structure by increasing the limit of the investment tenure. The move is aimed at encouraging investors to remain with the schemes for a longer period.

The changes are across fund categories, including the debt segment.

Now, an investor will have to pay three per cent as exit load on redemption of units in less than a year, against only one per cent earlier. To pay one per cent exit load, one will have to remain invested for three years.

The move follows tax changes to debt mutual fund schemes for which the government has increased the tenure for claiming long-term capital gains from a year to three years. In the 2014-15 Budget, the government had introduced a flat 20 per cent tax on debt funds. It had also extended the period of investment from 12 months to 36 months.

“The idea behind changing the exit load structure is to keep people invested for longer durations. This will act as a deterrent to those who want to redeem early,” said

A Balasubramanian, chief executive officer of Birla Sun Life Mutual Fund.

HDFC MF, ICICI Prudential MF, Reliance MF, Birla Sun Life MF and UTI MF are some of the major fund houses that tweaked the exit load structures, effective this month.

Many in the sector say more asset management companies might revise their fee structures soon.

“After the restructuring of taxes on debt funds in the Budget, there was flexibility to extend the load till three years on various schemes, including monthly income plans and bond funds. This is intended to keep the churning low and ensure investors stay in schemes longer,” said Karan Datta, chief business officer, Axis Mutual Fund.

ICICI Prudential’s Child Care Plan, which was charging one per cent as exit load if units were redeemed within three years, now has three applicable brackets. In case of redemptions within a year, the exit load is three per cent; between one and two years, two per cent; and between two and three years, one per cent.

Axis Mutual Fund, too, has increased the exit load period for its Focused 25 Fund from a year to two years.

Experts say if the revision in fee structure forces people to remain invested for longer periods, it will benefit them. Returns on debt schemes are expected to be higher through two or three years, as inflation and interest rates are expected to fall by then.

Another advantage, experts say, is the new fee structure will prevent distributors from churning client portfolios unnecessarily.