Following the Securities and Exchange Board of India (Sebi) announcement to waive entry loads for direct mutual fund (MF) applicants, Bajaj Capital Ltd is working with mutual fund players to provide no-load funds to its high-value and self-directed investors. “We are looking to introduce the product in the market in early February,” said Rajiv Deep Bajaj, managing director of Bajaj Capital, a New Delhi-based non-banking financial advisory firm. “But we want to keep the scheme structure and asset management companies (AMCs) a surprise for now.”
According to the memo issued by Sebi earlier this month, mutual fund investors will be exempted from payment of entry fee on direct applications received through the Internet, directly submitted to asset management companies (AMC), or to investor service centres.
“Loads on mutual funds are important, as they act as remuneration for our advisory services to investors,” said Bajaj. “We are working with mutual fund players to provide no-load funds to our investors who need limited or little advice from us.”
But, the question remains how the new initiative would be of any help to distributors when they are losing out on upfront commissions.
“Our commissions would be paid through the annual management charges of the mutual funds,” said Bajaj. “This could also put pressure on the profit margins of AMCs.” Not all distributors consider the arrangement with mutual fund players a long-term fix.
“Although distributors can enter into an arrangements with AMCs, but with hundreds of distributors flourishing in the country, it could be a little difficult to practise. It is also feared that non-retail and informed investors would ask for kickbacks to invest through them,” said a Mumbai-based distributor, who did want to be identified. “In the long run, the practice of no-entry load could go against the investor’s interest. The whole industry would push close-ended funds that have amortization charges as high as 6%.”