Who banned the entry load on mutual fund?

Ever since the Securities and Exchange Board of India (SEBI) has banned the entry load for mutual fund schemes, fund companies have been suffering from a steady haemorrhage of cash in their equity schemes. Here are some facts that will show you how badly this ban has affected the mutual fund industry.

What are the SEBI guidelines for the mutual fund schemes?

Key Highlights of SEBI guidelines for Mutual Funds

• The categorisation of schemes into five groups – Equity, Debt, Hybrid, Solution-Oriented, and Others.
• Large, mid and small-cap mutual funds have been defined clearly.
• There is a lock-in period specified for solution-oriented schemes.

Why you shouldn’t buy mutual funds before they pay distributions?

Each distribution method is taxable, but the amount of tax depends on how long the investments have been held. Buying a fund right before it pays a dividend triggers taxes that you must pay before you can reinvest, causing a loss.

Is entry load banned by Sebi?

Brushing aside opposition from fund houses and distributors, the Securities and Exchange Board of India (Sebi) today decided to ban entry load for all mutual fund schemes from August 1. The new system means there could be huge slippages in service tax paid by the fund industry.

Why was entry load banned?

It was a step up from exemption to direct applicants only. The removal of entry loads was intended to bring in more transparency in the payment of commissions to fund distributors and to incentivise long-term investment. By doing so, Sebi also aimed to link the distributor’s fee to the services provided by him.

What happens if a mutual fund company fails in India?

In the case of a Mutual Fund company shutting down, either the trustees of the fund have to approach SEBI for approval to close or SEBI by itself can direct a fund to shut. In such cases, all investors are returned their funds based on the last available net asset value, before winding up.

What are the problems of mutual fund in India?

They have their own set of problems regarding costs, services, regulations, profitability, participation, financial instability and others, which have been causing big concern to investors. The growing realisation on such issues is adversely affecting the investors’ stake in mutual funds industry in India.

What are the regulations of mutual funds?

The Investment Company Act of 1940 regulates mutual funds, as well as other companies. It focuses on disclosures about objectives, company structure, and operations. The Securities Act of 1933 mandates that you receive a good deal of information about the securities that are offered for sale in the public markets.

What happens if I sell a fund before a distribution?

If you sell your mutual fund before the ex-dividend date, you may avoid the fund’s distribution, but you may end up with an even larger tax problem. Any time you sell mutual fund shares, you’ll have to calculate the gain or loss on your trade and report it to the IRS. If you have a gain, you’ll owe tax.