Khyati Dharamsi

Mumbai: Fund houses have effected a sea change in their services since the Securities and Exchange Board of India (Sebi) waived the entry load for investors getting into mutual funds directly.

The changes can be seen in both online and physical channels. The entry load is usually 2.25% of the net asset value in case of equity mutual funds. The Sebi directive came into effect on January 4, 2008.

According to M N Srinivasu, cofounder and director of BillDesk, which facilitates online payment for these fund houses, where only 5-6 mutual fund websites offered an option to purchase units online earlier, about 15-16 today offer online services in some form or the other.

Though there are online buying options available, most do not offer a complete online procedure for firsttime investors. You will have to take prints of forms filled online and submit it at either the fund houses’ points of acceptance or send it via post.

Though investments made via mutual fund websites are considered direct, not all online channels can help you save on entry load,which refers to the percentage of the amount invested, which is deducted to meet the commission to be paid to the mutual fund distributor.

Buying from personal finance websites, bank websites and online demat accounts would not be considered direct.

Such investments are routed through the company offering the demat services or the bank, which get a distribution commission. The personal finance websites may be used to download application forms, but not to buy online, if you wish to save your entry load. Applications via an automated teller machine (ATM), permitted by a few banks and mutual fund houses, would also not be counted as direct entry.

You could buy from fund houses that offer online services provided you have completed your know-your-customer (KYC) verification with the fund house or registrars such as CAMS and Karvy. Most mutual fund houses currently offer only second-time or additional purchases online.

Reliance Mutual Fund offers online purchase without a customer having done KYC. This helps as you can get the net asset value of the day you decide to purchase.

Says Srinivasu: “KYC is essential before you redeem it and not before purchase. KYC can be done at a later date when you take the print of your online application form and submit it at the point of collection.”

Do check whether the fund house you wish to invest in allows direct online purchase before completion of KYC. There are precautions to be taken before applying online even with those asset management companies (AMCs) that allow additional purchases online.

If your first investment with an AMC is via a broker, chances are that the second one, too, would not go in as direct investment and you will lose on the entry load in spite of having applied on your own.

To avoid this, check for a box that asks you for the broker code or the mode of investment. Do enter ‘direct investment’ in this box, lest you lose the entry load, which would be given to your broker as commission. Do not leave this box empty as it will be considered a non-direct investment and anyone who comes across your form can fill up the box with any broker code.

Forms collected from a distributor are likely to have the broker code stamped. If you fill up and submit such a form, chances are he will get the commission despite you submitting it directly. What’s more, he will also get the trail commission on your investments.

There are also fund houses that send pre-filled forms to an existing investor’s address.Do not mistake this to be a kind gesture. DNA Money has found that these pre-filled forms include all the details of the investor -not just name, bank account number, PAN number, address, etc. The broker code of your agent, too, is included in the form. Thus, though your broker was not involved in either providing you the form or submitting it, he still earns and you lose.

Source : DNA