‘No Load’ Travails  

August 10, 2009

Retail investors are still struggling to make SEBI‘s ‘no load’ bonanza work for them. Logically, mutual funds should work to expand their reach, but an industry that has grown by bagging tax benefits in the name of retail investors and channelling these benefits to get corporate funds by paying fat distributor commissions is unlikely to change in a hurry. Faiz, an ICICI Direct customer, says the system is already biased towards larger investors. ICICI Direct has fixed a fee of Rs30 per transaction on Systematic Investment Plans (SIPs), irrespective of the value. In effect, at Rs30 on an SIP of Rs500 a month, you will end up paying a 6% commission which is substantially higher than the 2.25% load that SEBI saved you from. Is the fee structure making a mockery of SEBI’s intent, he asks? Or is it just a bias towards high-value customers?

We wrote to ICICI Direct and SEBI for an answer. ICICI Direct reacted by reducing the fee to 1.5% or Rs30, whichever is lower. It also said it has already written to customers assuring them there will be no fresh charge on outstanding SIPs, irrespective of the denomination; they will be treated as prior period investments with entry loads. Since its clients have more than two SIPs running simultaneously, it has advised them to consolidate their investment for better pricing benefits.

It will also charge no fee for investors whose cumulative mutual fund holding is more than Rs8 lakh and will encourage the creation of a larger cumulative portfolio by transferring investments done through other distributors at no extra charge. 

SEBI’s executive director, KN Vaidyanathan, told us, “The fee that ICICI Direct would charge would be an agreement between ICICI Direct and the investor. A client of ICICI Direct would be a Net client and, therefore, could exercise the option of using the Net for direct subscription to the mutual fund, which is bereft of any charge.  Investors, in any case, do have the right to go ‘direct’ to a mutual fund. Given that, we think we should leave it to market forces to drive the fees/charges—so long as that is transparent and requires every client to explicitly accept that fee/charge.  We will continue to monitor the progress.” Clearly, intermediaries are more sympathetic.