SEBI cuts exit load cap on MFs from 5 to 3 percent

SEBI cuts exit load cap on MFs from 5 to 3 percent

Creates incentives for distributors to implore women to invest

In its recent board meeting, the Securities and Exchange Board of India (SEBI) facilitated enhancing investor protection and financial inclusion in mutual funds (MFs).

The proposals included the exit load on MFs to be reduced from 5 percent to 3 percent. The present regulatory framework permits MF schemes to charge a maximum exit load of 5 percent, which is credited back to the scheme.

However, MFs generally charge exit loads of 1-2 percent. Therefore, reducing it would align the regulatory requirement with the prevailing industry practice. Capping it at 3 percent would strike a balance between investor protection and flexibility for schemes having exposure to less liquid securities.

On incentives to the distributors for inflows from B-30 cities, SEBI revised the structure to incentivize distributors only for a new individual investor (new PAN). It would be provided to them for new investor at the industry level and capped at 1 percent of the first application amount (lump sum investment) or total investment (Systematic Investment Plan) during the first year, subject to a maximum of Rs.2000.

As regards gender inclusion in MFs, the board decided to incentivize distributors to create awareness and promote financial inclusion among women investors.

An additional commission would be paid to distributors for investment from new individual women investors at the industry level. The computation and payment of the commission would be at par with B-30 incentives.