The Big Bang Reform-the entry load on Mutual Fund Investments to go
The S.E.B.I (Securities and Exchange board of India) has launched a reform, which is going to change the whole mutual fund market. Yes it’s true! The entry load on Mutual fund schemes, new or old, has been officially abolished. Normally mutual funds used to invest 97.75% of the principal amount paid by the investor, the rest 2.25% was paid by the fund house to the distributor.
The new reform will dramatically change the whole scenario of the fee amount charged by the mutual fund. The law complies the investors to directly pay the distributors a fraction of the 2.25%.
The distributor will charge the fee for his advisory role in recommending the investor where to invest. The distributor has much more role to play in the current scenario, since the distributor will have to spell out to investors the commission received from the various fund house. This single rule itself is the biggest impetus to bring the transparency and the professionalism in the distribution of the mutual fund.
The new wave of fee based professionalism in the Mutual fund market.
In any market if the opportunity to earn money is much more, when a certain person offers his expertise. Since the entry load has been abolished, the distributor has to offer his expertise in the areas of the asset allocations and the portfolio management to the investor to maximize his profit and bring another stream of revenue. The distributor can only charge the fee on his advisory services, which can be 1% of the portfolio or any fee amount depending on the negotiation between investor and distributor.
To survive in this cut throat financial market and with the waiver of entry load the distributor has to raise to the top most level of professionalism, give right kind of financial plan or advice and customize the plan according to the investors’ preferences. It’s the only way he can survive in the market and grow substantially.
In the present market only CFPs (Certified Financial Planner) are allowed to make financial plans for the investors. The CFPs have a major role to play in the future of our financial market.
The S.E.B.I has put more powers in the hands of the investor and made the job of the distributor of the mutual fund more difficult, the distributor can only survive in this market if they bring a different level of professionalism and transparency to the system.
The distributor will have to change the whole perception of a normal agents or mutual fund marketers. After this reform the world view on distributor of the mutual fund is that of a wounded horse right now, but this an opportunity for the distributor to mature as a professional and bring expertise in their field and they have to take this challenge head-on.