Govt may ask SEBI to re-introduce entry load
2 July 2012 7:43 AM GMT
In order to promote the sagging mutual fund industry, finance ministry may advise the market regulator the Securities and Exchange Board of India [SEBI] to consider re-introduction of commission for brokers known as entry load.
‘We will meet representatives of mutual fund industry and SEBI officials and will advise them to consider measures including re-introduction of entry load to revive the fortunes of mutual fund industry,’ a senior finance ministry official said. The ministry officials will meet mutual fund industry representatives and SEBI officials on Monday.
The entry load – 2.25 per cent commission paid to distributors of mutual funds – was banned in 2009 by former SEBI chief C B Bhave, who felt that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios. The ban, however, led to drying up of inflows into mutual funds.
The meeting comes close on the heels of Prime Minister Manmohan Singh's statement on Wednesday that there were problems facing the mutual fund industry that needed to be resolved.
The Mutual Fund Advisory Committee of SEBI is scheduled to meet on 17 July and may take a call on the issue.
As per industry insiders, ban on entry load has resulted in lower incentive for distributors, who usually push a product in their bid to earn higher commissions.
However, lesser investment in mutual fund products and other saving instruments have prompted higher money flow to gold, which has pushed up the current account deficit of the country due to rising imports of the commodity.
To restrict the investment flow to gold, which is considered as a dead investment, the government is now planning to make mutual fund schemes attractive for retail investors.
‘We will meet representatives of mutual fund industry and SEBI officials and will advise them to consider measures including re-introduction of entry load to revive the fortunes of mutual fund industry,’ a senior finance ministry official said. The ministry officials will meet mutual fund industry representatives and SEBI officials on Monday.
The entry load – 2.25 per cent commission paid to distributors of mutual funds – was banned in 2009 by former SEBI chief C B Bhave, who felt that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios. The ban, however, led to drying up of inflows into mutual funds.
The meeting comes close on the heels of Prime Minister Manmohan Singh's statement on Wednesday that there were problems facing the mutual fund industry that needed to be resolved.
The Mutual Fund Advisory Committee of SEBI is scheduled to meet on 17 July and may take a call on the issue.
As per industry insiders, ban on entry load has resulted in lower incentive for distributors, who usually push a product in their bid to earn higher commissions.
However, lesser investment in mutual fund products and other saving instruments have prompted higher money flow to gold, which has pushed up the current account deficit of the country due to rising imports of the commodity.
To restrict the investment flow to gold, which is considered as a dead investment, the government is now planning to make mutual fund schemes attractive for retail investors.
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