SEBI tells mutual funds to charge uniform exit fees for investments above Rs50 million
08 Aug 2009
Capital market regulator, SEBI yesterday said mutual funds would have to charge the same exit fees for all investors irrespective of the size of the investments of more than Rs50 million. Investments in mutual funds attract a lower exit fee on investments of more than Rs50 million.
The regulator has said funds may charge an exit fee up to 7 per cent but they will have to charge a uniform exit load across the board without discriminating against any category of investors.
Fund houses have been charging around 1 per cent as exit load from investors who invest less than Rs5 crore(Rs2 crore in case of some funds) while investments more than Rs5 crore were exempt from exit load in most cases. In case of fixed income funds, retail investors are charged 0.5 per cent as exit load for premature withdrawals while institutional investors investing beyond a pre-set limit were not charged exit loads.
"Mutual funds are making distinction between unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made, based on the amount of subscription while charging exit loads," the SEBI order said.
The order has evoked a mixed response from fund houses with a section of the industry saying such a move would discourage 'fast institutional cash' switching schemes, others fear the move will discourage insititutional from investing in mutual funds that are also subscribed by retail investors (general plans).
According to analysts the move will ensure that institutional money stays for long enough in the fund and also apply brakes on the assets under management (AUM) bundling game played by top fund houses.
Fund houses will now need to launch separate institutional plans to ring in investments.
Meanwhile the SEBI order, it seems, has not gone down well with the Indian Mutual Fund Agencies (AMCs). Many of them are a worried lot pointing fingers at SEBI but not openly speaking out in public. They say that AMC directors in SEBI had rejected the proposal but subsequently the proposal went under vote on SEBI intranet and the poll results were not known to them. They say the move was completely unexpected as the proposal was never discussed with them after it was rejected initially.
According to industry the move would hit investors more than the AMC's and their distributors.
The regulator has said funds may charge an exit fee up to 7 per cent but they will have to charge a uniform exit load across the board without discriminating against any category of investors. Fund houses have been charging around 1 per cent as exit load from investors who invest less than Rs5 crore(Rs2 crore in case of some funds) while investments more than Rs5 crore were exempt from exit load in most cases. In case of fixed income funds, retail investors are charged 0.5 per cent as exit load for premature withdrawals while institutional investors investing beyond a pre-set limit were not charged exit loads.
"Mutual funds are making distinction between unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made, based on the amount of subscription while charging exit loads," the SEBI order said.
The order has evoked a mixed response from fund houses with a section of the industry saying such a move would discourage 'fast institutional cash' switching schemes, others fear the move will discourage insititutional from investing in mutual funds that are also subscribed by retail investors (general plans).
According to analysts the move will ensure that institutional money stays for long enough in the fund and also apply brakes on the assets under management (AUM) bundling game played by top fund houses.
Fund houses will now need to launch separate institutional plans to ring in investments.
Meanwhile the SEBI order, it seems, has not gone down well with the Indian Mutual Fund Agencies (AMCs). Many of them are a worried lot pointing fingers at SEBI but not openly speaking out in public. They say that AMC directors in SEBI had rejected the proposal but subsequently the proposal went under vote on SEBI intranet and the poll results were not known to them. They say the move was completely unexpected as the proposal was never discussed with them after it was rejected initially.
According to industry the move would hit investors more than the AMC's and their distributors.