Mutual Fund: invest with caution and through right channel: Finance Trading Times

Mutual Fund: invest with caution and through right channel

I do not usually like to repeat information and news, but this one is good enough for the investors who have deep trust and faith in the Mutual fund investments.

I have always been against the charges that are taken from the investors in the name of fund management, entry load, exit load, distribution costs, etc. and that is why I always say that better to go for ETF’s instead of Mutual Funds. However, some respite is being offered by SEBI to the mutual fund investors.

As a new year gift to the investors,The SEBI has finally approved of waiving off the mutual fund investment entry load charges. What this means is the entry load charges when you invest into by buying a mutual fund units will not be applicable. This will save you something like 2.5% of your money.

However, there is an important point to understand clearly about investments in Mutual funds and getting the entry load waiver. The condition is that you MUST directly apply to the Mutual Fund house, instead of routing your application through your broker or agent. This point is very important to understand because people are still under the impression that if they have an online trading account with a broker, they can simply apply online for any mutual fund and they will not be charged any entry load.

My understanding is that this is NOT the case. Please verify it by calling your broker.

The mutual fund entry load charges will be waived off IF AND ONLY IF, you apply directly to the Mutual Fund company, (Mutual Fund AMC or Asset Management Company), which is offering the mutual fund. Hence, if I am willing to invest in the HDFC mutual fund, then I MUST apply directly on the website of HDFC mutual fund, by using my debit card. OR, I should go to the office of HDFC Mutual Fund in my city and fill in a paper form and submit a check to apply.

As per my understanding, if my stock broker allows me to apply for mutual funds through online trading on his website (like icicidirect.com or sharekhan.com) and I apply through my online brokerage account, then I WILL be charged the entry load. The reason is that even if I am applying online, the online application is being routed through my broker (or his website), hence it is NOT a direct application, so I should not get any entry load waiver. Please verify it with your broker and confirm whether you will be charged entry load or not. (The above is as per my understanding of rules).

Who would be affected? It will be the agents and middlemen who have been making around 4% to 8% of money who will loose their business. Secondly, the small fund houses who do not have online application facility and do not have significant presence in different parts of the country will be affected, because they rely upon these agents to sell their mutual fund products. However, in the name of saving the entry load money, the investors will now apply directly to the fund houses or AMCs and so these small funds with limited presence and no online application facility will be hurt.

Still the problem may not be solved. They entry load has been vanished, but it is possible that the mutual fund industry, which is the bread and butter of stock brokers and agents, may come up with some other charges, or increase the exit load charges and so on to recover the cost. No guarantee how the market will work – its only in a name.

Invest wisely, first understand the rules and act accordingly! Wishing everyone a New Year with healthy and fruitful returns! Table of Contents
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6 Comments: Post your Comments

Anonymous said...(on 2 January 2008 at 02:43 )  

Hi,

I wish you a happy andposperous NewYear 2008.
Each and every article in this BLOG is really educative.

May God bless you in this endeavour

Regards
KUMAR K P

Amit said...(on 2 January 2008 at 03:00 )  

I think many people are mis-understanding SEBI's guidelines.

In my view, SEBI has given a choice to investors:-

1 Use broker's service and pay 2.25% entry load.

2 Don't want to use broker's service apply directly through the AMC and don't pay 2.25% entry load.

Then why everyone is predicting brokers will be affected. If a person has to apply for 6-7 MFs it will be quite a trouble to remember 6-7 different MF online accounts or visit individual AMC offices.

People who want convenience cant opt for broker.

Siddhartha said...(on 2 January 2008 at 04:25 )  

Shobhit, can you touch on online brokerage fees, do you think?

I know of two, Sharekhan @ 25 bps and ICICI Direct @ 75 bps. I don't know what others charge? What I don't understand is, WHY this HUGE difference for (to the best of my knowledge) the same kind of service?

I asked a friend of mine who uses ICICI Direct why he pays higher, and he had no clue himself! (But his trades are low, so it didn't really pinch him.)

Can you, Shobhit, or anyone else here shed any light on this?

Thanks,
Siddhartha.

P.S. Happy New Year to you and all other readers on the blog!

Bhupesh said...(on 7 January 2008 at 07:01 )  

Any exit load becomes part of corpus or it is fund house' gain to be expensed on marketing/brokers?

What about in insurance if some one terminate policy prematurely all loss of policy holder is gain of Insurer or remaining insured in that policy?

Jagadeesh said...(on 31 March 2008 at 03:28 )  
This comment has been removed by a blog administrator.
Anonymous said...(on 24 April 2008 at 05:31 )  

Hi brokerage vary from 1bps to 5bp for square of trdes and 10bps to 50bps for delivery based trades. besides this there are other charges like service tax, STT, Demat Charges, etc.. ICICI includes service tax, dematcharges, and transaction chrages. you need to check what is included in share khan charges. Need more help email me at Dominic dom@stansoftware.com

Wish you all happy and fruitful trading and investing activities with safety! = = = Post a Comment

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