FinMin mulls re-introduction of entry load for mutual funds

The Finance Ministry may advise the Securities and Exchange Board of India (SEBI) to consider measures including re-introduction of entry load to bail out the mutual fund industry. The Mutual Fund Advisory Committee of SEBI is scheduled to meet on July 17.

However, experts feel that rather than bringing back entry load, the effort should be to allow mutual funds to launch pension schemes. At the same time, the Rajiv Gandhi Equity Scheme should be routed through mutual funds, they suggested.

Highly placed official sources said that after the Prime Minister’s directive to resolve issues about the mutual fund industry on Wednesday, the Finance Ministry is getting ready to draw up an action plan.

Re-introduction of entry loads, which will boost income for funds, is one of the key proposals. Since any move in this regard can be made only by SEBI, the Finance Ministry will advise the regulator, one source said.

SEBI banned entry loads from August 1, 2009. This was done to empower the investors in deciding the commission paid to distributors in accordance with the level of services received, to bring about more transparency in payment of commission and to incentivize long term investment.

The mutual fund industry has been unhappy with this. “First of all, introduction of such a move was not correct. Even the world body, though agreed in principle, did not introduce it, but India did,” said a senior fund executive.

But bringing back entry loads is expected to further dampen sentiment, particularly when the markets are down. This will take away the investors to other avenues, he added.

Earlier this month, the SEBI chief Mr U.K. Sinha, had said that various stakeholders have given their suggestion but not about re-introduction of entry load.

In fact SEBI has requested the Finance Ministry that facilities in the recently announced Rajiv Gandhi Equity Saving Scheme should be made available for investment through mutual funds. This will help the investor to reduce the risk, while benefiting the industry.

Echoing the same sentiment, Mr Dhirendra Kumar, CEO of Value Research said, “Rather than pressing for re-introduction of entry load, the Government should facilitate mutual funds to launch pension funds.”

Such a move will help the industry to get long term funds, which will also help the stock market. It is estimated that the mutual fund industry can easily mobilise Rs 50,000 crore through pension funds.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3581465.ece