Securities Exchange Board of India (SEBI), has instituted a new regulation which will take effect from August 1, 2009, which has an immediate impact on what you pay whenever you buy a mutual fund scheme.
At present we pay 2.25% of the total amount taken from the amount you invested in most Equity based mutual fund schemes.
Relevant extract of the SEBI circular released on June 30, 2009 (SEBI/IMD/CIR No.
4/168230/09) is as follows:
'In order to empower the investors in deciding the commission paid to distributors in accordance with the level of service received, to bring about more transparency in payment of commissions and to incentivize long term investment, it has been decided that:
- There shall be no entry load for all mutual fund schemes
- The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor
- Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately
- The distributors should disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor
This circular shall be applicable for :
- Investments in mutual fund schemes (including additional purchases and switch-in to a scheme from other schemes) with effect from August 1, 2009
- Redemptions from mutual fund schemes (including switch-out from other schemes) with effect from August 1, 2009.
- New mutual fund schemes launched on and after August 1, 2009; and Systematic Investment Plans (SIPs) registered on or after August 1, 2009'
