Sebi moots options for MFs variable charges
The Securities and Exchange Board of India (Sebi) has proposed two options to implement variable entry loads in mutual fund schemes following investor complaints over commissions paid to distributors. The distributors of an AMC are compensated for their services in two ways. A fixed charge is deducted from the investors subscription by the AMC (known as entry load) and is paid to the distributor. In equity schemes this is generally around 2.25% of the subscription. In addition,the AMC is free to pay the distributors amounts considered appropriate by them. The practice of deducting a certain%age from the investors subscription has led to criticism on one hand by the investors that they have no control over what they pay for the advice rendered to them. On the other hand,while sharing of the distributors commission with investors is prohibited,complaints regarding such practices are voiced without any evidence being available, Sebi said in its proposal. The Sebi Advisory Committee of Mutual Funds has asked for public comments on two options to operationalise the issue of implementing variable entry loads (a) Separate section in the application form within the application form there could be a section where the investor could indicate the commission payable to the distributor,which would be signed jointly by the investor and the distributor. The AMC would then deduct the amount payable and pay the distributor. (b) Separate cheque issued by the investor towards commission in this mode the investor issues two cheques,one for his investment in the name of the scheme and the second in favour of the distributor towards the commission agreed to be paid. Sebi has said that in both options the process for making the investment application would be the same,except for the entry load being decided in terms of the agreement between the investor and distributor. However,the mode of payment of the commission would differ.