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Friday, February 1, 2008

SEBI reduces the burden of the Retail investors at the cost of Distributors and High networth investors

The Securities and Exchange Board of India (Sebi) reduced the costs for mutual fund investors by doing away with the initial issue fee for close-ended schemes.

Currently, initial issue expenses on closed-ended funds are amortised over the period of the fund. It allows funds to spend the amount collected as fees (currently, about 6 per cent for a three-year fund) in stages and not at one go.
Following the Sebi move in 2006 to scrap the amortisation benefit for open-ended schemes, there was a spurt in closed-ended schemes.
Sebi said all mutual fund schemes will henceforth meet sales, marketing and other such expenses from the entry load.

Bulk of the initial issue expenses normally pocketed by mutual fund distributors, who in turn refund certain amount to High networth invesrtors.

Now, the Distributors have to rely more on their advisory services as the revenue through initial issue expenses collected by the fund has been swiped by SEBI.

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