Cheers !! .. SEBI now says :
“Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.”
More Competition and hence little cheaper for Investors
Now agents will not be getting commissions from Mutual Funds companies which means that now there is direct competition among Agents. The agents can only ask for more if he really gives good service to buyers else they have to settle with a low commission which will be decided by customers.
This means now we can bargain with the agent on commission percentage and if he is not ready with what we offer him/her. We can look for someone else who is better and fits us.
Higher Quality of Service and more transparency in Market
Now agents will have to deliver much better quality of service and be more transparent with investors as their bread and butter is directly linked with Investors and not with the Mutual Fund Companies.
Lots of agents will now move to sell ULIPS rather than Mutual Funds
This move will also force lots of mutual funds agents to shift their focus on ULIPS and similar products which have commission linked with premium paid by customers rather than fee based model like we now have in case of mutual funds. This means more miss-selling in ULIPS is on the cards.
See the following New Video To understand
Update: thanks to income.portfolio for this.
AMC’s are allowed to use 1% of redemption in mutual funds for commission to agents and all the marketing costs. Its the money from exit loads which has to be utilized in commissions and other marketing costs. Most of the mutual funds have less than 0.5% of 1% of exit loads at this point and with this rule of SEBI, it can not go above 1% in future. Also it can be “up to 1%”. So this 1% will be used for every type of cost incurred by mutual funds.
Now most of the funds will have exit loads only if investor gets out in short term like 6 months or 1 yrs. Hopefully it will not be after 1 yr. So its a concern for those who are short term investors. Its not a matter of concern for long term investors as far as I think.
Also, now there is no need for PAN Card for investing in mutual funds up to Rs 50,000 through SIP as per SEBI new rules.
I am out for a 2 day weekend Trek to Kumaraparvata. So no article till Monday morning. I will post the 2nd article of “How a newcomer should start in Stock Markets?” Read Part 1 Here .
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