Recently SEBI had passed a regulation to ban entry load (being charged to individual investors) by Mutual Funds, effective Aug 1st 2009. I didn't write any post cheering this move, because I knew that the fund houses would find a backdoor entry to charge the investor back.
My suspicion has been confirmed.
In a bid to counter the No-Entry load rule, which became effective from August 1, many fund houses have increased the exit load and the tenure for the inapplicability of exit load to 3 years.
This means you (the investor) will have to stay invested in mutual funds for 3 years if you wish to avoid paying exit load. Earlier the exit loads were applicable if the investor redeemed within a year.
This can impact you in two ways:
(i) This will prompt you to stay invested for the long haul, which is important while making equity-oriented investments.
(ii) You should watch out for distributors who can coax you to churn your portfolio too often, in order to earn commission through exit load. Distributors are entitled to receive a maximum exit load of 1%.
What is a sensible approach? Couple of rules that I have decided to to go by:
(i) Always choose a fund, which is capable of meeting my objectives and matches my profile.
(ii) Stay invested in the fund as long as they serve that purpose.
(iii) Invest in Index Funds, where the overheads are generally low.
To research mutual funds before I invest, I go to Mutual Funds India. This is an excellent, comprehensive portal to research all available Mutual Funds in India. It shows the historic performance, NAVs and simply all information that you want around various types of Mutual Funds .
Check it out before you take a plunge. More on this site later.
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