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Funds Hike Exit Loads

To make sure investors don’t withdraw their money, funds are getting more stricter

Fund houses are trying everything to discourage investors from going in for early redemptions, to the extent of punishing them with fines in terms of higher exit loads.

This is getting to be an increasingly popular habit of quite a few fund houses, both small and big.The method through which this is undertaken is by revising their load structure. A very common change that the mutual fund (MF) houses have been bringing about is increasing the tenure for which withdrawals are subject to exit load, if any.

After Tata MF, ICICI Prudential MF, ING MF and Kotak MF brought changes in their load structure in almost all their equity schemes earlier, it is now the turn of UTI MF. The fund house has increased the exit load in not one, or two, but 19 of its schemes.

In a recently issued notice, UTI MF has modified the exit load applicable under its open-end equity schemes, except the index and tax-planning funds.

According to the new structure, for investments of less than Rs 2 crore in any of these schemes, an exit load of 1 per cent will be applicable for redemption within 365 days, instead of 180 days applicable earlier. For investments of Rs 2 crore and above, exit load of 0.50 per cent will be applicable for redemptions within 180 days.

Under UTI Wealth Builder Series II - Retail Plan, the exit load for investments of Rs 2 crore or more, the number of days for which exit load was applicable earlier was 365 days, whereas for all others schemes it was 180 days.

This change, according to the fund house is in line with the industry practice aimed at deterring quick redemptions, or, seen from another perspective, encouraging greater gains to be derived from long-term investments.There is however, no change in the entry load which remains 2.25 per cent for investments of less than Rs 2 crore.

Since June this year, around 60 equity schemes have revised their load structure.Tata MF had increased its load structure under Tata Index Fund to 4 per cent for redemptions within 90 days. At present, this is the highest exit load applicable under any equity scheme.

On the other hand, ICICI Prudential MF has increased the exit load applicable under all its equity schemes in the beginning of June itself. For example, under ICICI Pru Discovery Fund and ICICI Pru Dynamic Fund, the exit load of 1 per cent that it was charging for redemptions within the first 6 months and 0.50 per cent for redemptions from 6 months to 1 year has now been increased to 1 per cent for redemptions within 1 year.

As per the earlier SEBI guidelines, there was a load in existence of up to 7 per cent -- a sum of both entry and exit loads. But now after the new regulations were brought in by the market regulator, there is no entry load.