Funds houses hike entry load for systematic investment plan


The fund houses have announced that with effect from June ’06 systematic investment plan will cost more. Fund houses are ready to impose higher entry load of 2.25% on fresh investments using the SIP route up from the present 1%. This would mean that for every Rs1000 invested through SIP, Rs22.5 will be deducted every month as entry load, compared tp Rs10 earlier. The new load will be applicable on all fresh investments made from June 1st.

Sources said that the move was prompted by mounting losses incurred by Asset Management Companies (AMC) on SIP. The sources said that they are charging a load of only 1% on SIP but were paying normal brokerage charges of 2.25%. Once SIP volume went up it was no more possible for AMC to bear the loss said an official with a private sector mutual fund. He said that his AMC was losing around Rs3crore per month on this account. The costs have become difficult to bear every month especially when volumes are increasing with every passing month. The SIP ticket size is very small between Rs500 and Rs1000. However distribution and running costs of these SIP has been rising continuously and therefore there is no other option explained the head of another private sector mutual fund.

Association of Mutual Funds of India (AMFI) chairman justified hiking of the rate by mutual funds. He said that “Systematic investment plan� comes with a cost to these funds and therefore they had to incur a host of charges like banking charges, stationery expenses and courier charges etc., Probably, these charges have forced the mutual fund companies to hike the entry load charges.

Distributors aren’t, however, buying the argument that the distribution costs are the main reason for the upward revision in the entry load. Funds houses are paying 2.25% brokerage fee only for the first two payments made in an SIP. They are hiking the entry load mainly because of higher running costs observed a MF distributor.

Investment advisors said investors unduly need not worry about the increase in the entry load on SIP installment.

Two years ago there wasn’t an entry load in SIPs. Then funds slowly hiked it to 1% as the idea of SIPs became popular. Now they are standardizing the rate in line with the entire spectrum. They are also reducing exit loads, so that the total loads will not shoot up.

Our opinion is that irrespective of the hike, SIPs continue to be the best option available to investors. Smaller investors may initially feel the impact if their investments are for a shorter duration. But in the long term the investors stand to gain from this best option of SIP for optimum returns on their investments with safety.