End of entry load to benefit small MF investors

The proposal of SEBI to remove entry load (an initial charge on the fund) on direct MF investments is good news for retail investors. This facility would be available for investors who apply directly to the asset management company (AMC) either through the Internet or by visiting the premises of the fund house without involving the services of agents.

This move is progressive as entry loads only reduce overall returns earned by mutual fund investors. The entry loads — which are charged at the time of investment — can range anywhere from 1%-2.25% of the investment amount depending upon the category of the scheme (See Table). So, for instance, an investor seeking to invest Rs 10,000 in an equity fund actually ends up paying Rs 225 as entry load, while the rest is invested.

Says Gaurav Mashruwala, a certified financial planner: “An investor who is equipped to make his/her own decision in choosing schemes and has time to visit mutual fund office directly will save a substantial amount. Eventually, it is a forward step towards free pricing, where the investor and the distributor agree on the load structure”.

Most mutual fund investors of the country today rely on the advice rendered by their agents to pick and choose the schemes to invest in. Those who are better off use the services of their financial advisors. However, the ones who can truly understand the industry and make their own decisions are only a handful. And it is probably this third category of investors who will benefit the most from this new proposal.

The no-front-load model was reportedly introduced for the first time by Vanguard, which decided to go ahead and sell mutual funds without the service of agents. In India, Quantum MF is following a similar model of selling mutual fund schemes. The fund accepts investments through the Internet and does not charge a front-end load to the investor.

Says Quantum MF chief investment officer Devendra Nevgi: “This is a welcome proposal and will benefit the investor if and when it comes through. Right now, we need more investment education so that more investors can actually take the decision of their investment in their hands than depend on other advisors and agents.”

Today, actively-managed funds charge loads on equity-oriented mutual fund schemes. Many mutual funds are ready to waive off the loads if investors are ready to invest more than Rs 10 lakh at a go. Thus, higher the investment, lower the fees.

Mr Nevgi sees a problem in this. Ideally, small investors invest around Rs 10,000 to 20,000 in mutual funds. But since their investments are small, they get charged the highest loads, he feels. If front end loads are removed, the investor will benefit in this regard as well.

Great investing tips from Rakesh Jhunjhunwala

Markets are like women -- always commanding, mysterious, unpredictable and volatile," quipped 'Big Bull' Rakesh Jhunjhunwala (inset) while addressing a meet organised by Shailesh J Mehta School of Management, IIT, Bombay on August 10.

A champion broker, often termed as Warren Buffett of the Indian stock market, Jhunjhunwala had a full-to-the-brim auditorium spellbound as he traced how he made his fortune from a starting capital of Rs 5,000. His career path is stuff dreams are made of.

What earned him fame is his skill to pick under-valued stocks. Some of his renowned calls are Karur Vysya Bank, CRISIL and Bharat Electronics. There are, however, quite a few more. Talking about his company RARE (derived from the first two letters of his name and that of his wife Rekha) Enterprises, Jhunjhunwala says, "My company has only one client -- my wife -- so that I don't need to handle others' money."

One of the biggest bulls of the Indian market, Jhunjhunwala believes in trading by the hunches. "If in doubt, listen to your heart," is what he tells young investors. Extremely optimistic about India's growth story, Jhunjhunwala shared with his audience some valuable insights about the Indian economy, future of Sensex. Read on.

What paved the way to Jhunjhunwala's success?

A democratic growth process rather than an imposed one and a biological evolution, pat comes the reply.

He owes a lot to resurrection of a dormant and vigorous entrepreneurial gene of India. "The country has rediscovered its confidence."

There has been a strong improvement in India's macroeconomic indicators, combined with a robust banking system.

Improvement has also been observed in India's corporate performance, powered through productivity gains. Jhunjhunwala is convinced that on-going reforms would have a multiplier effect on India's economy.

Jhunjhunwala's investment strategies

August 14, 2007
Jhunjhunwala learnt investment strategies the hard way. And he was more than willing to share it with his audience. Here are a few gems from his book of learning

Necessary for any investor is optimism.

Be opportunistic but wait for the right moment

Study the market thoroughly. Refer to history

Maximise profits and minimise losses

Invest in a business not a company

Always have an independent opinion. Observe and read relevant information with an open mind

Be happy with your gains but learn to accept losses with a smile

Be prepared for challenges and risks

Predicting a brighter and better future for the Indian markets, Jhunjhunwala signed of by saying that the Indian markets will reach the peak by 2010.

For beginners in the market, here are a few invaluable gems from Jhunjhunwala's book:

Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it.

Do something you love

The means are as important as the end

Aspire, but never envy

Be paranoid of success -- never take it for granted. Realise success can be temporary and transient

Build a fighting spirit -- take the bad with the good

When you see a horizon, it seems so distant. When you reach that horizon, you will realize how many more horizons are within reach