Explained- No Load

EXPLAINED

Loaded in favour of the intelligent investor

Posted online: Friday, August 24, 2007

On Wednesday, the Securities and Exchange Board of India (Sebi) proposed to allow funds to be sold without load. Sandeep Singh goes behind the proposal to decode just what this is all about

What is a load?
Entry load is an upfront charge which any mutual fund (MF) investor has to pay the distributor selling the fund. It stands at 2.25 per cent for existing equity funds and up to 6 per cent for new fund offers. Sebi has now proposed that all investments in mutual funds — whether a lump sum investment or a systematic investment plan (SIP) — that are routed directly through a mutual fund (through its website or branches) will attract no entry load. However, if the investor decides to go through a distributor, he will have to pay the load.
So, what’s the fuss about?
In one line, it’s about lower costs — and therefore higher returns. It is also about not paying if not availing of a distributor’s service.
But what’s new?
Currently, only one asset management company — Quantum Mutual Fund — offers this facility. One can make investments in Quantum schemes only through its website or branches.
Will it hurt distributor business?
If the distributor is behaving like a courier, that is carting forms to investors, filling them and depositing them with the AMC, yes. But distributors who are providing value by delivering advice will continue as before. In fact, this will help distributors rise up the value chain and behave like financial planners. The former is like a chemist; the latter like a doctor.
Will this affect penetration, given that distributors help bring in new investors?
Not necessarily. The distributor route is still open and investors who want to approach a distributor for investment can do so. This route would suit households that are comfortable investing on their own.
Who should go for no load funds?
Investors who can analyse funds — compare past performances, evaluate portfolios or track fund managers and their performance regularly — should opt for no loads. Others should rely on the advice of a good planner.

http://www.indianexpress.com/story/212291.html