The proposal by the Securities and Exchange Board of India (Sebi) to waive entry loads on direct applications in mutual fund schemes has faced opposition from the Financial Planning Standards Board (FPSB) India, a Mumbai-based professional standards-setting body for financial planners.
On 6 September, FPSB India submitted its recommendation to Sebi stating that the rebating system should be reinstated for mutual fund distributors, but the discount given to investors should be properly documented. Under the rebating system, which was eliminated by Sebi in June 2002, distributors can give a certain percentage of discount to customers out of their commission income. “The board has suggested no no-load fund and a ‘variable entry load’ model too,” said Shailesh Haribhakti, FPSB India chairman.
Under a ‘variable entry load’ a client and distributor can negotiate entry load on a transaction-to-transaction basis, based on the perceived value of advice. Sebi is expected to come out with a policy on entry loads for direct investors in a fortnight. FPSB India’s move came after Sebi proposed to waive the entry fee for direct applications received by mutual fund companies.