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SEBI Wields Axe on Lock-In

The market regulator has cracked down on the funds’ raising early exit penalties

Market regulator, the Securities and Exchange Board of India (SEBI) is getting more and more strict with each passing day in an attempt to bring the errant ways of the mutual fund industry back on the equity plane and thereby make the industry serve the purpose of the small investors who have been at the receiving end of some biased treatment.

First came the announcement regarding the imposition of the ban on entry loads as on August 1, then came the August 24 deadline for Asset Management Companies (AMCs) to charge a uniform exit load from all investors (big or small) and now, concerned over the recent move by fund houses to increase the lock-in period beyond a year, SEBI has asked funds to reduce the period on which a penalty is imposed for exiting a scheme early.

The new time period specified by SEBI is that an exit load should be imposed only if an investor exits within one year, rather than the three-year period that funds have imposed recently. The scrapping of entry loads had led many fund houses to increase the lock-in period.

SEBI has also fixed one per cent as exit load that can be charged by asset management companies (AMCs) as expenses.

SEBI was forced to act as the changes being made by funds were unfair to retail investors -- those who invested Rs 3-to-Rs 5 crore, did not have to pay exit load, while any sums under that had to do so.

It was then that the board directed fund houses to bring about a balance in exit loads for all class of investors irrespective of the amounts invested by them.