A sum equal to 2.25% of the investment amount is taken by Mutual Fund Houses of India as an entry fee for the investment made by investors. Majority, or even whole, of this amount is given as commission to brokers who act between investors and fund houses. The brokers market the fund, provide financial advisory services to investors and do the required paper work.
Possibility of making investments online eliminated the need of a broker. Still, the entry load is levied by fund houses, which seem kind of illogical. SEBI (Securities and Exchange board of India), the regulatory authority of securities market came out with a welcome move in this regard.
Business Standard says, “The SEBI on Wednesday brought out a concept paper proposing to do away with the entry load charged by mutual funds through direct route. If the current proposal is accepted, mutual fund investors will not need to pay entry load for applications filed online or through AMC collection centers. The proposal is open for public comments till September 12, 2007.”
This is indeed a great proposal from SEBI as investors are paying for nothing, when they make an investment online. But yes, this would be a major blow to the broker houses as they stand to lose a lot of money when people prefer online investments for saving the entry fee. Public comments can be send to SEBI on this proposal. More details here.