SEBI has requested for comments on a proposal that says, essentially, that you need not pay any entry load when you invest directly with a fund (as opposed to doing it through a distributor/agent). This is fantastic.
What you need to do:
- Write a mail to ruchic@sebi.gov.in saying that you completely agree with this proposal and that you support it wholeheartedly.
- Wait till SEBI makes it a law.
Note that this process can take a lot of time. But at least it's a start. Also, be assured that distributors will gather all the support possible to veto this proposal. So if you're a reader, please write to the above email address with your consent. You will save 2.25% of your money later.
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>there r some ETF which by the nature of it have no entry or exit load.. but since most of them r not in fashion.. or cherished by the investors… i think people r ready to pay the entry/exit load.
08.24.07 at 1:19 AM
>Hi Deepak,
“Sebi proposes to waive the entry fee for direct applications received by mutual fund companies either through their investor service centres or the Internet.”
Do you know how we can buy mutual funds directly on the internet. Right now all that I do is buy them through my online icicidirect account. But in this case, icici will be acting as a brokerage house right…
Regards,
Venu.
08.24.07 at 8:23 AM
>Ankur: People just don’t know enough about ETFs because they don’t advertise heavily. Eventually they will get more credibility. They do have a little bit of an entry load as you pay brokerage charges on buying, but still, it should be cheaper than current entry loads.
Venu: Yes, you can buy online but ICICI gets the brokerage in this case.
08.24.07 at 8:35 AM
>Deepak,
Thanx for the reply. Currently, can we buy mutual funds online through internet from the fund houses directly ? If yes, can you please list those fund houses.
Regds,
Venu.
08.24.07 at 12:29 PM
>I can do switch freely from Equity to Debt Fund or vice versa , if it is implemented which I do in ICICIPension Fund
(they allow 4 per year free. After Rs.100 per switch ).
08.24.07 at 12:29 PM
>venu: Yes, many houses allow online investments. SBI mutual fund, HDFC mutual fund, Quantum are the houses I know of that allow such investments.
08.24.07 at 2:09 PM
>SEBI’s move is a welcome one for investors and hopefully it is implemented. The devil, as always, lies in the details.
The effect of the entry load and recurring load on long term investments is often not understood and typically understated.
Consider the details mentioned in the article.
No load move marks Sebi’s first step in a necessary journey
http://www.indianexpress.com/story/212517.html
Assuming:
Average Sensex Growth 16.00%
Average Expense Ratio 2.00%
Recurring Commission 0.50%
———- Today Proposed Improvement %
Investment 100.00 100.00
Day 0 98.00 100.00 2.04%
Year 1 111.72 114.50 2.49%
Year 2 127.36 131.10 2.94%
Year 3 145.19 150.11 3.39%
Year 4 165.52 171.88 3.84%
Year 5 188.69 196.80 4.30%
Year 6 215.11 225.34 4.76%
Year 7 245.22 258.01 5.22%
Year 8 279.55 295.42 5.68%
Year 9 318.69 338.26 6.14%
Year 10 363.31 387.31 6.61%
The investor is missing out on a 4.3% increase in his investments in a 5-year horizon as a result of the commission, considering the mutual fund returns are the same rate as the sensex.
If the proposal goes through, the mechanism of implementation becomes important. Ideally, the annual expense ratio for the investors using the direct route should come down from 2% to (2-0.5) = 1.5%. However, if the proposal is implemented at the fund level, which is very likely, the effect is much less.
Assuming a fund has 10 direct investors and 90 investors through distributors and all investors have invested the same amount of money. The expense ratio for the fund is now (10*1.5% + 90*2%)/100 = 1.95%. The fall in expense ratio is hence proportional to the increase in direct investors.
Unfortunately, I do not see a discussion anywhere (media + blogs) about the possible mechanisms of implementation.
08.26.07 at 10:01 AM
>Day dream. This is definitely not going to happen. How in this world earnings could be made by financial services intermediaries who have spent millions of rupees to recruit, train people to sell these mutual funds. For your kind info, I don’t own any DSA, Distributing channels or working for it. This definitely helps investors like me, but it won’t get implemented. Believe me, there are huge vested interests that would eventually win despite huge cry from investors like us. In India, everything has its own interests and mutual fund distribution is a multi crore business, where any financial service company wouldn’t love to loose this game for the sake of servicing customers. You send emails to SEBI or even pray to god, it’s not going to happen. If this happens, I’d say it’s a MIRACLE. Having said this, please don’t think that I’m a cynic, Infact I’ve sent an email to SEBI after reading this article, but this is certainly tough to get implemented.
08.27.07 at 6:00 AM
>bhaskar: The mechanism is very simple. Either you invest with a fund that has no distributor commissions at all – Nifty BEES, Quantum etc. – or you invest in any other fund. What this proposal does is only saves you teh ENTRY load, not the trailing commissions.
The only way trailing commissions can be addressed is to have a “investor-only” fund which has no distributors. That is not a successful model in India, yet.
Guruprasad: It was the same in the US, but now Vanguard is the most popular fund house there (and they have zero commission funds)
You’re right, there are vested interests, but India has some of the most investor friendly regulations and bodies in the entire world, so I wouldn’t necessarily write this off.
08.27.07 at 6:45 AM
>Another point to consider. If I have invested directly with the fundhouse, what happens to the
trailing commission? Theoritically if there no agent there should not be any commission.Or the
commission should come to the investor. Currently the agent gets the trailing commission. What do you say?
09.10.07 at 10:44 PM