'MFs can't charge varying exit loads from investors'

The Securities and Exchange Board of India (Sebi) has restrained fund houses from charging unitholders different exit loads based on the value of their investments. The market regulator has told asset management companies that they can charge exit load within the existing limit of 7%, but without discriminating against any category of investors. Until now, fund houses were charging around 1% as exit load from investors who have invested less than Rs 5 crore (Rs 2 crore in case of some funds). Investors who have invested more than Rs 5 crore were not charged an exit load in most cases. In the case of fixed income funds, retail investors were charged 0.5% as exit load for premature withdrawals (exit load limit may span between six months and one year), while institutional investors investing beyond a pre-set limit were not charged exit loads. "Mutual funds are making distinction between unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made, based on the amount of subscription while charging exit loads," the Sebi order said. The order has raised mixed reactions from fund houses. While a section of the industry believes such a move will dispel 'fast institutional cash' moving in and out of schemes, others are apprehensive as to whether institutional investors will continue to invest in mutual funds that also has retail investors (also called general plans). "The move will ensure that institutional money stays for long enough (in the fund). This is also intended to apply brakes on the AUM bundling game played by top fund houses," said the marketing head of a private fund house. Fund houses will now have to launch separate institutional plans to ring in investments. "We can move around this diktat only by launching exclusive schemes for institutions. Only then we'll be able to give institutions a no-load exit," said channel head of bank-promoted fund house. "But this could marginally increase the expense ratio of retail funds. Institutional money greatly subsidised the cost of managing the fund; without institutional money, AUMs in retail schemes could fall, which could result in the expense ratio of the fund shooting up," the channel head said.

Source: http://economictimes.indiatimes.com/Personal-Finance/MFs-cant-charge-varying-exit-loads/articleshow/4869575.cms