The manner of investing in mutual funds has changed over a period of time for individuals. This is likely to shift even more dramatically in the coming days.The decision of the Securities and Exchange Board of India (SEBI) to abolish the entry load on schemes has been a big surprise for everyone. For investors this signals a possible change in theway they take their investment decisions.
There will be some benefit available, but at the same time there also has to be some element of care taken in the process so that it is completed properly.
Entry load
The entry load is the additional expense that has to be paid by the investor when they make an investment in the mutual fund. The entry load usually was in the range of 2-2.5 per cent of the investment and this was an extra burden for the investor.
The load is usually used to cover various selling expenses of the scheme like payment of distributors commission, miscellaneous expenses and so on. Till some time ago, there was an option for the investor to actually save the entry load by making their own investments directly and this ensured that the burden did not fall on them.
Now according to the new guidelines, the schemes should not charge any entry load at all so the investor would not have to pay anything extra. When an entry load is charged, the investor ends up getting a lesser number of units for the same investment.
So, if for example, the net asset value of the scheme is Rs 15 and the entry load is 2 per cent the investor will actually get the units at Rs 15.30 which means that for the same investment there will be a lesser number of units allotted to them.
The entry load is the additional expense that has to be paid by the investor when they make an investment in the mutual fund. The entry load usually was in the range of 2-2.5 per cent of the investment and this was an extra burden for the investor.
The load is usually used to cover various selling expenses of the scheme like payment of distributors commission, miscellaneous expenses and so on. Till some time ago, there was an option for the investor to actually save the entry load by making their own investments directly and this ensured that the burden did not fall on them.
Now according to the new guidelines, the schemes should not charge any entry load at all so the investor would not have to pay anything extra. When an entry load is charged, the investor ends up getting a lesser number of units for the same investment.
So, if for example, the net asset value of the scheme is Rs 15 and the entry load is 2 per cent the investor will actually get the units at Rs 15.30 which means that for the same investment there will be a lesser number of units allotted to them.
Selection of scheme
Now with the abolition of the entry load, the investor has to concentrate on the process of selecting the right scheme. There are such a large number of options that need to be considered and this will require some element of work.
Investors will need to consider its performance more closely while making decisions. With no entry load present, the final returns that are coming in for the investor will be influenced largely by the performance or the returns that are generated by the scheme. In such a situation, the investor would do well to concentrate more on the potential returns that can be generated, so that this will help them in their decision-making.
The investor should also look at the fund manager, because this is an important factor that will play a role for their selection.
Now with the abolition of the entry load, the investor has to concentrate on the process of selecting the right scheme. There are such a large number of options that need to be considered and this will require some element of work.
Investors will need to consider its performance more closely while making decisions. With no entry load present, the final returns that are coming in for the investor will be influenced largely by the performance or the returns that are generated by the scheme. In such a situation, the investor would do well to concentrate more on the potential returns that can be generated, so that this will help them in their decision-making.
The investor should also look at the fund manager, because this is an important factor that will play a role for their selection.
Exit load
The important point that investors will have to consider is that there could be an exit load that might make a strong re-appearance in the entire investment consideration. Mutual funds are likely to tighten the situation on the exit load front to ensure that the investor does not move in and out of the scheme very quickly.
The percentage figure of the exit load can also rise in the days to come and this can mean a bigger hit in case this has to be paid. The individual investor has to ensure that the exit load is considered while making their decision because this will reduce their returns. This factor has to be taken into consideration in the coming days.
The important point that investors will have to consider is that there could be an exit load that might make a strong re-appearance in the entire investment consideration. Mutual funds are likely to tighten the situation on the exit load front to ensure that the investor does not move in and out of the scheme very quickly.
The percentage figure of the exit load can also rise in the days to come and this can mean a bigger hit in case this has to be paid. The individual investor has to ensure that the exit load is considered while making their decision because this will reduce their returns. This factor has to be taken into consideration in the coming days.
Payment to distributor
The condition about how the investor goes about the entire investment process is important because this can give rise to another element of negotiation.
Under the new conditions, if you use the service of the distributor then there is no fixed fee for the distributor that will be paid by the mutual fund. Rather than this, you will have to pay the distributor, but this will have to be done after discussion and mutual agreement.
The figure will thus vary from person to person and hence there has to be a very clear idea about the manner in which this part of the transaction will actually take place.
The amount that you are willing to pay and how you actually make the decision and the points to consider will vary from person to person, so the right balance needs to be struck in deciding this issue.
The condition about how the investor goes about the entire investment process is important because this can give rise to another element of negotiation.
Under the new conditions, if you use the service of the distributor then there is no fixed fee for the distributor that will be paid by the mutual fund. Rather than this, you will have to pay the distributor, but this will have to be done after discussion and mutual agreement.
The figure will thus vary from person to person and hence there has to be a very clear idea about the manner in which this part of the transaction will actually take place.
The amount that you are willing to pay and how you actually make the decision and the points to consider will vary from person to person, so the right balance needs to be struck in deciding this issue.
Own efforts
There could be a lot of efforts that have to be done on their own by investors because of the entire change due to the fact that there could be a very low interest from the distributor to actually serve the customer.
With the financial incentive gone, there could be a reduction in the services and the only option for the investor is to ensure that they complete a lot of work on their own.
This will require some more time and effort along with the knowledge about the process. The effort could involve the issue of doing some amount of follow up or even communicating directly with the mutual fund, but this can vary depending upon the exact situation for the investor.
This factor has to be brought into the consideration, as it will impact the way in which the overall investment is done.
There could be a lot of efforts that have to be done on their own by investors because of the entire change due to the fact that there could be a very low interest from the distributor to actually serve the customer.
With the financial incentive gone, there could be a reduction in the services and the only option for the investor is to ensure that they complete a lot of work on their own.
This will require some more time and effort along with the knowledge about the process. The effort could involve the issue of doing some amount of follow up or even communicating directly with the mutual fund, but this can vary depending upon the exact situation for the investor.
This factor has to be brought into the consideration, as it will impact the way in which the overall investment is done.
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