Pay transaction fees for mutual fund investments above Rs 10,000

Entry load in mutual funds is back again, albeit with a different name. The Securities and Exchange Board of India (Sebi), which banned entry load in August 2009, has allowed mutual fund distributors and agents to charge Rs 100 as 'transaction fee' per subscription for investments over Rs 10,000. For new investors, the charge would be Rs 150 for every subscription.

No fee would be charged, however, on transactions other than purchase of new units. Direct investments in mutual funds would not attract any transaction charge.

Though the mutual fund industry and distributors have welcomed the move, aimed at increasing retail penetration, lack of clarity on many issues continue to make investors as well as distributors restive.

Most investors are curious to know how the transaction fee will be charged on systematic investment plans (SIPs), one of the most popular ways of investing in mutual funds.

While the Sebi board meeting proposed that the fee be charged in 3-4 instalments, it is not clear whether it will be charged on the basis of the annual investment or the total investment over the years.

Surjit Misra, head, mutual funds, Bajaj Capital, says clarity will come only when Sebi comes out with a detailed note on the proposals made at its board meeting.

There is lack of clarity on the definition of new investors as well. "Who's a new investor? An investor new to the fund house or new to the industry?" asks Rajesh Krishnamoorthy, managing director, iFast Financials, an online distributor of mutual funds.

Waqar Naqvi, chief executive officer, Taurus Mutual Fund, says a new investor will most likely be the one who is a investing in mutual funds for the first time.

Krishnamoorthy of iFast says, "We are also not clear about the mechanics of payment. We want clarity on whether the fee will be deducted from the invested amount or paid over and above the investment amount."

Even as the move allows entry load to make a backdoor entry into mutual fund transactions, it is yet to be formalised. It will be interesting to see how the transaction fee is levied and what impact does it have on the overall growth of the industry.