Sebi changes norms on use of MF funds

MUMBAI: In order to bring in some uniformity in usage of funds that had accrued to mutual fund houses before entry load was abolished in August 2009, market regulator Sebi on Wednesday said fund houses can use only one-third of the money collected prior to the ban in a particular financial year. The Sebi directive relates only to funds that had accrued to MFs before entry loads were done away with, and fund houses were at liberty to decide how they want to use the funds accrued to them since August 1, 2009.

Before the ban came into effect, MF agents and distributors used to get up to 2.5% of the invested amount as commission from fund houses, called entry-load, when they sold MF units to investors. At present, fund houses are allowed to charge investors an amount only during the time of redemption, called exit load.

"It is essential to bring about uniformity in usage of load balances," a Sebi circular said. So in effect, from now on, the load account balances of fund houses would have two parts, one which will reflect the balance as on July 31, 2009, and the second the accretions since August 2009.

"The unutilized balances can be carried forward, yet in no financial year the total spending can be more than one-third of the load balances on July 31, 2009," Sebi said. Fund houses can use the balances in load accounts to meet marketing and selling expenses, including commissions paid to agents and distributors.