SEBI has scrapped the Entry Load that is levied on investors investing in Mutual Funds. Now if an investor invests Rs.100 to purchase the units of XYZ Mutual Fund, all of that amount will go to purchasing units of the fund and no deduction will be made towards Entry Load.
Last year SEBI had passed a regulation to the effect that frees investors from the entry load on Mutual Funds if they invested directly without the help of a broker/intermediary. However, since most mutual fund schemes are confusing and the application forms are difficult to fill and submit directly to the mutual fund house, the majority of investors hardly found this move bringing them any joy. They would usually end up going through a broker and getting slapped with an entry load ranging from 2.25% to 3% of their investment, most of which is usually paid out the the broker/distributor in the form of commission. This means a loss of Rs.30 on every Rs.1000 you invest, right at the time of purchase.
From 18th June, 2009, SEBI has removed the concept of Entry Load on mutual funds, irrespective of whether you invest directly to the mutual fund house or go through a broker. This move may bring some cheer to investors but there is always a clause one has to watch out for in such rulings. And here is the catch. You have to pay a commission to the broker if you choose to invest through him. SEBI has issued in its statement that the investor will choose the amount of commission payable to the distributor. How this is supposed to work and what are the benchmarks for such a commission are unclear as yet but most brokers may choose to not accept any commission at all to keep up with competition and act as advisors to investors. All in all, a good move with respect to the investor in these troubled times. The markets are down in the dumps and are predicted to remain so for at least another year with marginal improvement. Hence investing in an Equity Mutual Fund through SIP is the best bet at present. Note that Mutual Funds only provide best returns in long term (over 3 yrs).