Moneycontrol Bureau
Fund houses, battling bad market conditions and tax changes to debt mutual fund schemes, have recently revised exit load structure by increasing the limit of the investment tenure. These include HDFC Mutual Fund, Axis Mutual Fund, Birla Sun Life, UTI Mutual Fund and others who increased exit loads, effective October, for select schemes from 0.5 percent to two percent for a period ranging one to three years.
It may be recalled the government had increased the tenure for claiming long-term capital gains from one year to three years for debt mutual fund schemes in its maiden Budget.
Meanwhile, SEBI also mandated that the exit load be ploughed back into the scheme which increases NAV for investors, and by extension, theoretically proves that increased exit load is good for them.
Discussing the merit and demerit of the just-imposed higher exit load, the twitterrati engaged in a virtual war with some saying the move will curb misselling and deter short term deserters, while others describing it as an exercise to pay higher fees to distributors.
Samir Arora of Helios Capital, who vociferously opposed imposition of higher exit load, disagreed with a Business Standard article that seems to have suggested the same, tweeted “Exit load is good for you-really? Because you are too dumb is the official excuse. Real reason-to pay higher fees two agents.” When Manoj Nagpal responded by saying “Close-ends / higher exit loads akin to closing doors of movie hall, so that you benefit by watching the full movie,” Arora retaliated once again with “Only reason why closed ended funds are being sold is because agents get 5 percent from AMC and they will only pay if investors are locked in.”
Below is the full text of the twitter war on exit load:
Samir Arora (@Iamsamirarora): Exit load is good for u-really? Because u are too dumb is the official excuse Real reason-to pay higher fees 2 agents
Manoj Nagpal (@NagpalManoj): @Iamsamirarora Close-ends / higher exit loads akin to closing doors of movie hall, so that u benefit by watching the full movie :)
Samir Arora:@NagpalManoj Only reason why closed ended funds are being sold is bec agents get 5% from AMC & they will only pay if investors r locked in
Rajeev Thakkar (@RajeevThakkar): @NagpalManoj What should be expense ratio is one debate. What should be exit load is another. Unfortunately the two get clubbed. (1/2)
Rajeev Thakkar:@NagpalManoj Small / midcap bear transaction and impact costs. The speculators market time at exp of long termers in absence of load. (2/2)
Samir Arora: Fund Mgrs complain that NAV was hit due to impact cost of ST redeemers.No one says that NAV was helped as ST buyers bought & helped same NAV
Samir Arora:To attract LT investors, MF manager should state what they mean by long term and show with data that the fund indeed invests 4 the long term
Parag Parikh: @Iamsamirarora You are right.Please visit http://www.amc.ppfas.com to understand.We have the discipline and courage to walk the talk.
Samir Arora:@RajeevThakkar @NagpalManoj Exit load is there so that investors stay so that AMC earn higher fee & can payer higher amount to distributors
Parag Parikh (@paragparikh): @Iamsamirarora @invest_mutual @RajeevThakkar @NagpalManoj It is 2 encourage longterm investing.The load enhances NAV.Existing investors gain
Invest Mutual @invest_mutual: @NagpalManoj AMCs cld be transparent and give EXIT load amt & compare with 20ps added to TER @paragparikh @Iamsamirarora @RajeevThakkar
Manoj Nagpal: @invest_mutual Published in B/s. On avg 20bps charge is 5 times of exit load credited back to sch @paragparikh @Iamsamirarora @RajeevThakkar
Rajeev Thakkar: @Iamsamirarora @NagpalManoj @kayezad @invest_mutual Exit load does not lock. Compensates for impact and transaction cost.
Manoj Nagpal: @RajeevThakkar In that case u shud keep 6-12 mth exit load, Why 2/3 yrs exit load? Is that short? @Iamsamirarora @kayezad @invest_mutual
Manoj Nagpal: @RajeevThakkar Fundhouse is well within its right to "not-accept" money from a PAN which is trading in its fund. Has any fund rejected?
Invest Mutual: @NagpalManoj @RajeevThakkar Great idea Manoj if implemented. Now, there is effort to gather &retain AUM & increase profits thru higher ERs
Aashish (@AashishPS): @invest_mutual @NagpalManoj @PatnaikNishant @deepakshenoy pic.twitter.com/9TPWvzOStE
Nishant Patnaik (@PatnaikNishant): @AashishPS @invest_mutual @NagpalManoj @deepakshenoy Ths was d point i was trying to make.AMCs shud leave exit dcsion on investrs n advisrs
(Posted by Jhini Sinha Phira)
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