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Sebi scraps MF entry, exit loads from April 1

Mumbai
March 19, 2008

The Securities and Exchange Board of India (Sebi) scrapped loads (entry as
well as exit) charged by mutual funds on bonus units and units allotted on
reinvestment of dividend, with effect from April 1.

The new rule follows the recommendations of the Association of Mutual Funds
in India’s Working Group on Standardisation of Key Operational Areas, a circular
by Sebi said here this evening.

An entry load is charged when an investor enters a mutual fund scheme. For
redemptions made thereafter, investors are charged an exit load by the fund
house.

However, the fund manager sometimes converts earnings from the scheme into
units and distributes them as bonus units to the investors.

These bonus units are then charged entry load and exit load.

The logical argument made against charging such loads is that it is
investor’s money that has contributed to the earnings and that investors are not
entering the scheme afresh, so charging an entry load does not make any sense.

In the case of the dividend reinvestment option, the investor is assigned
units for dividend that is re-invested in the scheme.

[Source: The Business Standard]

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