AMCs will be allowed to fully utilize funds collected from exit loads after 31 July 2009 for marketing and paying commissions to distributors
Mumbai: In a bid to bring uniformity in the usage of exit load corpus, market watchdog SEBI today issued a circular asking fund houses to maintain two separate accounts for the money collected through loads. The first account will show the money collected till 31 July 2009. The second account will have to reflect accretions since August 1,2009 when the entry load was abolished.
Fund houses will only be allowed to spend 30 per cent of money from exit load mopped up till 31 July 2009 to meet their marketing expenses and distribution costs. However, AMCs will be allowed to carry forward this unutilized balance in the next year. Also, SEBI has not put any restrictions to utilize the funds collected after 31 July 2009. AMCs will be allowed to utilize this money to meet marketing and selling expenses freely.
Since the ban on entry loads, fund houses are only allowed to charge an exit load from investors in case of early withdrawals. So far the funds collected from exit loads were supposed to be ploughed back in to the scheme to compensate existing investors. Fund houses currently show this ‘load balance’ as liabilities in their books.
The move is largely expected to benefit the AMCs and the distribution fraternity as fund houses will now be allowed to use the exit load corpus collected after July 2009 without any restrictions. According to fund officials, this rule may hinder large fund houses to some extent as they now cannot dip into the old reserves to pay upfront commissions to distributors due to the 30 per cent cap on the expenses.
