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Lower Exit Loads For Big Investors Banned

Funds must treat small investors on par with large ones; lower exit loads for larger investment amounts banned

The Securities and Exchange Board of India’s (SEBI) crusade to straighten out fund regulations continues apace. Earlier today, the regulator came out with a circular that banned the practice of charging lower exit loads from big-ticket investors. With entry loads banned, exit loads have generally been enhanced. All asset management companies’ (AMCs) new load structure has lower (or zero) loads above a certain limit. Typically, investors who have more than Rs 3 to 5 crore in a fund get away without any exit load.

Now, SEBI has said that no distinction can be made on 'quantitative basis'.

Here's the text of the circular:

Exit load - Parity among all classes of unit holders

1. SEBI vide circular No. SEBI/IMD/CIR No. 5/126096/08 dated May 23, 2008 has simplified the formats for Offer Document and Key Information Memorandum of Mutual Funds Scheme. The simplified Scheme Information Document format provides that “Wherever quantitative discounts are involved the following shall be disclosed – The Mutual Fund may charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit holders. However, any change at a later stage shall not affect the existing unit holders adversely”

2. It is observed that the mutual funds are making distinction between the unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made based on the amount of subscription while charging exit loads.