Axis and ICICI Prudential have hiked exit loads from 1% to 3% from 1st October.
ICICI Prudential Mutual Fund and Axis Mutual Fund have increased exit loads under their flagship equity schemes.
ICICI has hiked exit load from 1% (if redeemed before one year) earlier, to 3% (if redeemed before six months) now in ICICI Pru Equity and Derivative Fund-Volatility Advantage Plan, ICICI Pru Discovery Fund, ICICI Pru Top 100 and ICICI Pru Dynamic Plan from 1st October.
Similarly, Axis Mutual Fund has hiked exit load from 1% (if redeemed before one year) earlier to 3% (if redeemed before six months) now in Axis Triple Advantage Fund, Axis Income Saver, Axis Equity Fund, Axis Midcap Fund and Axis Focused 25 Fund from 1st October.
The revised exit loads will also be
applicable for facilities like SIPs and STPs in these schemes.
Most fund houses normally charge 1% exit load
in equity funds if investments are redeemed before one year. As of now, very
few schemes charge as high as 3% to 4% exit load. Quantum Long Term Equity Fund
is one of the schemes in the industry charges 4% exit load if investors redeem
before six months.
Increasing exit load has been a tool for fund
houses to discourage investors from early redemptions. On the flipside, high
exit loads could also act as a deterrent for investors to enter in a scheme.
Investors could prefer to invest in schemes with low exit loads.
SEBI’s March 9, 2011 had mandated AMCs to set aside up
to 1% of exit load proceeds in a separate account. This corpus was used by AMCs
to pay commissions to distributors and to take care of other marketing
expenses. Any balance was credited to the scheme.
Hiking exit loads does not benefits fund
houses in terms of profitability as the proceeds go back to the scheme.
SEBI in its press release issue on 16th
August had asked AMCs to credit back exit loads to the scheme and allowed them
to charge a 20 basis additional TER. AMCs are also required to claw back the
additional TER charged to the scheme on investments received from beyond top 15
cities.
The industry has long been grappling with the issue of churning. Recently, SEBI has asked AMCs to make additional disclosures pertaining to distributor-wise gross inflows net inflows, average assets under management and ratio of AUM to gross inflows on their websites to identify portfolio turnovers. If SEBI finds that distributors are churning portfolios more than two times AMCs will have to conduct additional due-diligence of such distributors.
It remains to be seen if other fund houses also hike
exit loads.
