SEBI’s Guidelines on Exit load

SEBI or Securities and Exchange Board of India continues to look for opportunities to reward mutual fund investors and specially retail investors. First it slashed the Entry load and I explained how it will benefit the long term investor in my article Mutual Fund Fees and now SEBI came out with a circular that stops the practice of charging lower exit loads for big investors.

Every Mutual Fund has no load for investors in range of 3 to 5 crore but with the new circular this needs to be changed as well.

Here is the the quote from the SEBI Circular. See the official circular and I quote

Exit load – Parity among all classes of unit holders

1. SEBI vide circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 has simplified the formats for Offer Document and Key Information Memorandum of Mutual Funds Scheme. The simplified Scheme Information Document format provides that “Wherever quantitative discounts are involved the following shall be disclosed – The Mutual Fund may charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit holders. However, any change at a later stage shall not affect the existing unit holders adversely”

2. It is observed that the mutual funds are making distinction between the unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made based on the amount of subscription while charging exit loads.