The Hindu Business Line : AMCs plan to remove entry load disparities in equity schemes

SEVERAL mutual funds are seeking to remove the disparity on entry loads on equity schemes, to attract more retail investors. Most equity funds charge entry loads of one per cent to two per cent for investments below Rs 1 crore.

In order to make new funds palatable to retail investors, asset management companies (AMCs) are planning to abolish the entry loads altogether or charge all customers at uniform rates, irrespective of the amount of money invested.

Franklin Templeton already has a uniform load structure for all clients, altered from the initial slab system. Two AMCs that Business Line spoke to have confirmed that new plans will be launched at uniform or zero entry loads and offer documents for the existing plans may be altered to reflect this principle of uniformity.

The slab system of loads — where the percentage of entry load charged will depend on the slab in which the amount invested falls — was evolved as a volume discount to large and corporate investors. The transaction cost of processing these transactions is also significantly lower.

AMCs who rely on these loads to finance distributor incentives are reluctant to change the load structure.

Mr Prakash Dalal, Chief Marketing Officer, Kotak Mutual Fund, said that entry loads were a trade off between investors and distributors. Since distributors have to be compensated, the entry load is a necessary evil. AMCs that are planning to abolish entry loads on equity schemes said that they had made sufficient provisions in budgets to account for the loss of income from entry loads and the compensation of distributors would not be affected.

Distributors believe that the new load structure will add fillip to retail participation in funds.

Mr Vineet Potnis, Chief Marketing Officer, Chola Mutual Fund, disagrees. The industry is not mature enough to load corporate investors, he said. "Retail investors will not compare between funds on the basis of the load factor, they know that they are paying for a service. The two are not connected," he said.

Once the official announcement of the new load structures are announced, there may be an across-the-board abolishment of slab-wise load system by all AMCs.

"If a sufficient number of AMCs change the structure, others may be forced to follow, said Ms Kavita Hurry, Chief Executive Officer, ING Vysya Mutual Fund.

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