Friday, September 11, 2009

Abolition of entry load hits mutual fund sales

Abolition of entry loads on equity mutual fund schemes has sharply hit sales of equity schemes in the very first month of the new rule coming into effect. Industry sources admit this is the fallout of the recent SEBI regulations scrapping entry loads completely and introducing a variable load structure for all mutual fund investments with effect from August 1, 2009.

Equity assets have recorded a net outflow to the tune of Rs. 142 crore (Rs. 1.42 billion) in August, despite a 5% increase in the overall industry’s assets under management (AUM) to Rs. 7,56,638 crore (Rs. 7566.38 billion). "Around 80-90% drop in the equity assets can be attributed to the scrapping of entry loads as independent financial advisors (IFAs) did not sell equity products in August, 2009,” said a senior official at a fund house. "Even banks have slowed down the sale of equity mutual products drastically, as their sales persons have also seen a sharp decline in their commission structure," he added.

Thus, the share of equity assets in the total industry AUM has slipped further to just about 24%, including ELSS, from over 25% of assets until last month. ULIPs, on the other hand, are now expected to see aggressive push, both by distributors and producers of these products.

While the industry had been patting itself on the back for recording over Rs 7.5 lakh crore in AUM, the fact remains that it has been driven largely by inflows into debt schemes. Banks have been a major contributor to the rise in industry AUM. For the fortnight ended August 14, 2009, banks had deployed about Rs. 1,56,900 crore (Rs. 1569 billion) with mutual funds.

Source: The Economic Times

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