Bring back entry load of MFs, Fin advisors tell SEBI

4 May, 2012, 06.38AM IST,Shailesh Menon,ET Bureau

MUMBAI: A revival of entry load and allowing fund houses to revive the practice of providing 'indicative yields' while floating fixed maturity plans were among the key demands put forth by independent financial advisor (IFA) associations in their meeting with top SEBI officials on Thursday.

The meeting was chaired by SEBI whole-time member Prashant Saran and IFAs were represented by members of Chennai-based IFA Galaxy and Mumbai-based Foundation of Independent Financial Advisors (FIFA).

In the meeting, both the regulator and the IFAs expressed concerns over the current state of the domestic asset management industry, whose growth has stagnated in the last three years partly because of bearish markets and distributor apathy towards mutual fund products after the ban on entry load - the initial fee that MFs charged investors to pay distributors.

FIFA members requested SEBI to roll-back entry load, which was banned in August 2009. The members impressed upon the SEBI panel the need for higher pay-out (distributor commission) to widen the reach of mutual funds beyond 'top-20' cities.

The SEBI panel has made a note of this request by IFAs; many expect a "favourable decision" regarding entry loads in a couple of weeks' time, said people who attended the meeting. Both SEBI and the IFA panel chose not to discuss the contentious 'agent-advisor distribution model', on which SEBI issued a concept paper a few months ago.

As per AMFI data, about 15 of the 35 fund houses have over 80% of their assets mobilised from Mumbai, Delhi, Kolkata, Chennai and Bangalore. Even large fund houses collect about 64-75% of their assets from the top five cities. The regulator urged IFAs to increase their distribution reach to smaller cities and towns.

Members representing IFA Galaxy asked the regulator to permit funds to state 'indicative yields' while launching fixed maturity plans.

"Several fund houses are stating indicative yields informally these days, but are not performing well to get those yields. This even puts us in bad light because we advise our clients on the basis of these informally stated yields. If SEBI allows funds to publicly declare indicative yields, it will be easy to book the underperformers," said Ramesh Bhat, president of IFA Galaxy.

Members of IFA Galaxy also asked SEBI to fix a standard 'minimum investment limit' while launching equity NFOs (new fund offers). The body has also asked the regulator to mandate a standard (or common) application format across fund industry, which will further simplify the investor admission process.

Members representing IFAs also asked SEBI to instruct fund houses to state the category of fund in the 'scheme title' itself.