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Did you know ? | Some MF investors are still paying entry loads?

Did you know ? | Some MF investors are still paying entry loads?
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First Published: Thu, Jun 09 2011. 08 53 PM IST
Updated: Thu, Jun 09 2011. 08 53 PM IST
Though entry loads were abolished way back in August 2009 for all investors—and in January 2008 for investments made directly with the fund house bypassing agents—there are still some investors who pay an entry load of 2.25% imposed by fund houses in those days. Recently, a Mint reader tweeted that he still pays the entry load in a systematic investment plan (SIP) with one of the top five asset management companies (AMCs). Is it possible?
Look at effective date
In the circular abolishing entry loads, the capital markets regulator, the Securities and Exchange Board of India, said the rule will apply to investments made in existing schemes as well as all new schemes launched after 1 August 2009, the date on which the rule came into force. The circular also had a crucial detail about SIPs. It said that entry loads were abolished for all SIPs that started on or after 1 August 2009. In other words, SIPs started before 1 August 2009 will continue to attract entry loads.
Loads are contracts
When you invest in a mutual fund, the entry as well as the exit loads applicable at the time of investment stays forever. This is because you enter into a contract with your fund house when you buy units of any scheme; the terms and condition, of which these loads are a part of, are mentioned in the scheme document. Assume you invest in a scheme that carries a 2% exit load and after a year, the exit load drops to 1%. Even if you withdraw thereafter, you will need to pay 2% exit load and not 1% because the 2% exit load was a part of your contract at the time of your investment. Similarly, if you had joined at a time when entry loads were present, your SIP will continue to attract entry loads for all the instalments.
Conversion to the new regime
After entry loads were abolished, investors had the option to stop existing SIPs and start afresh under the no-load regime. But that called for filing two forms—one to stop the existing SIP and another to start a new SIP. To make life easier for investors, almost all fund houses issued a re-registration SIP form (without entry load). All existing SIP investors had to do was to fill up this form (available on the fund’s website or through agents) and submit to their fund house. If you haven’t done that already, do it now and stop paying entry loads.
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First Published: Thu, Jun 09 2011. 08 53 PM IST
More Topics: Did you know | MF | Mutual Fund | Entry Loads | SEBI |