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HSBC MF scraps exit loads on all schemes

Move would make schemes cheaper for short-term investors

BS Reporter  |  Mumbai 

From March 1, the domestic mutual fund (MF) arm of HSBC Global Asset Management would scrap exit load, a fee on premature exits by unit holders, on all its funds, said a release.

The move, rare for any entity in the 43-member Indian MF sector, might be aimed at boosting flows into its schemes. However, it has faced criticism within the sector, as rivals feel it would encourage smaller MFs to follow. Some also feel it would encourage trading in equity schemes, rather than in long-term investments.

In a release on Thursday, HSBC claimed it was the first asset management company to do away with exit loads from all its schemes.

“The removal of exit loads makes the products more attractive to the investor, as one doesn’t have to contend with the prospect of being charged a penalty for early withdrawals, owing to a genuine requirement one may have,” Puneet Chaddha, chief executive of HSBC Global Asset Management India, said in the release. “We believe this falls in line with the ongoing efforts of the regulator to increase penetration of mutual fund products and make these easier to understand for uninitiated investors,” the release added.

As of December 31, HSBC managed assets worth Rs 5,350 crore; the MF sector’s assets under management were Rs 7,86,543.6 crore.

Currently, MFs charge about one per cent exit load on equity schemes to discourage redemptions. In 2009, the Securities and Exchange Board of India (Sebi) had barred MFs from charging entry load, a fee funds charge investors to pay distributors.

MF sector officials said the move might be part of HSBC’s plans to increase ‘trail fees’ to distributors. These fees are paid on an annual basis, as long as one remains invested in the fund. “It looks like HSBC is likely to follow an ‘all-trail’ model,” said the chief marketing officer of a bank-owned MF.

Some in the sector believe the strategy wouldn’t work, as distributors usually didn’t sell schemes without ‘upfront fees’.

Dhirendra Kumar, chief executive of Value Research, a New Delhi-based MF tracker, said the step was “tactical” and would attract short-term flows into the fund house’s schemes. “There is nothing wrong with it. Every fund is trying to find its space in the industry,” he added.

Officials at rival MFs said while large MFs wouldn’t adopt the ‘zero exit load’ strategy, smaller ones, with negligible equity assets, might be tempted to do so.

“This is against the government’s and Sebi’s vision to make equity a long-term product. Investors with a short-term outlook for the market can move in and out rapidly. The impact of this on existing investors also needs to be seen,” said the chief executive of a large MF.


PIONEERING MOVE
  • Move might be aimed at boosting flows into HSBC MF schemes
  • Rivals feel it would encourage smaller MFs to follow
  • Some say it would encourage trading in equity schemes, rather than in long-term investments
  • Officials say the move could be part of HSBC’s plans to increase ‘trail fees’ to distributors
  • Currently, MFs charge about 1% exit load on equity schemes to discourage redemptions
  • As of December 31, HSBC’s AUMs were Rs 5,350 crore; and the MF sector’s Rs 7,86,543.6 crore

First Published: Thu, February 21 2013. 22:51 IST
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