Mutual fund houses are strongly resisting a proposal from market regulator SEBI for treating small investors at par with large institutional ones in terms of various charges, such as exit-loads, with the argument that retail investors are costlier to service.
The Securities and Exchange Board of India, in its latest communication to about three-dozen fund houses operating in the country, has suggested that they charge equal exit-loads, which are the fees that investors are asked to pay when redeeming their mutual fund investments, from both retail and institutional investors.
Generally, retail investors are asked to pay about one per cent of their investment value as exit-load, while there is no charge for large investors, where the fund value runs into crores of rupees. These charges are informed to investors at the time of making their investments.
In some cases, the fund houses also waive such charges at their own discretion for large institutional clients.
As part of its attempt to make MF investments more attractive for retail investors, SEBI now wants them to be treated at par with large investors, a top official at a leading fund house said, adding that the move also holds significance because of the continuing exodus of investors during the past few months, especially from equity-focused funds.
However, the fund houses are not in favour of such a move as they feel that servicing retail investors is much costlier for them and the margins are also less and hence, the charges can not be lowered, another senior industry official said.
At the same time, the fund houses do not want to lose large institutional clients by increasing the charges for them, the official said.
Most of the fund houses have communicated their stand to SEBI and have asked industry body AMFI to take up the matter with the regulator, he added.
The official also added that abolishing of entry load late last year has anyway not helped in bringing in more retail investors to the market and the decision in fact backfired, with distributors shunning this business. A move to lower or abolish exit load was not advisable in the interest of the industry, he said.
After three months of continuous exodus, the industry could check the outflow of investors only last month and that too, because of debt schemes, where retail investors participate in limited numbers and which are mostly bought by large institutional investors.
According to data available with AMFI, the total number of MF folios or accounts stood at nearly 4.79 crore at the end of June, up 21,350 from a month ago. The debt schemes recorded an increase of 1.90 lakh folios during the month, while the number of equity scheme accounts fell by nearly 1.4 lakh --making it the fourth straight month of decline.