Mutual Funds increase exit loads

Some more bad news for the mutual fund investors – major mutual funds are hiking the exit loads on the most popular funds. The proposal from SEBI regarding slashing the entry load has just caused a panic in the mutual fund industry. Mutual Funds have now revised the load structure at the exit point.

As per the news:
Reliance Mutual Fund, Birla Sunlife Mutual Fund and Franklin Templeton Mutual Fund have increased the exit load in as many as six of their equity schemes.

Exit load is the amount of commission you have to pay when you decide to take your money back from the mutual fund you have invested in. For an example, if you invested 10,000 in a mutual fund, and after 3 years it has grown to 12,000 and you decide to take back your money at these levels, you will have to pay exit load on your maturity money. If the exit load is 2%, then 2% of 12,000 = 240 Rs. will be deducted from your maturity money of 12,000 and you will receive only 11,760 as the final amount.

Exit load is typically the 'desirable' kind of load, as mentioned by the fund industry “experts”. They claim that EXIT LOAD acts as a ‘restriction’ to the MF investors, and high exit loads will force the investors to keep the money invested in the fund for long term.

Now think about this: You give your money to mutual fund managers, they invest your money (basically gamble on random things called stocks), they don’t promise you any returns for sure, they take the charges from you for you giving them your money (sometimes annually, sometimes monthly) and now, they want to increase the charges so as to force you not to take back YOUR money from them.

Sometimes, the reasoning stated by the so-called investment industry experts just makes me believe that it is really a world full of monkeys.

Investments are made with the point of view of getting financial freedom. Why and how can a fund manager dictate to me about how and when should I enter and exit in his fund (causing monetary losses in terms of loads), is something that I cannot digest.

I am getting a feeling that even if SEBI’s proposal of slashing the entry load goes through and is enforced, the mutual fund industry will end up coming up with some or the other fancy nomenclature for taking commission from the investor in the name of professional money management.

Prasad has rightly left a comment on my previous post on SEBI’s proposal, mentioning that he has a SIP plan for investing in a scheme. The SIP investment is automatically done through ECS or Electronic clearing system. So though the broker or agent is not involved in the process at all, he still ends up paying the “distribution commission”.

Considering all these (possible) developments and problems, the only way out for the investor is to keep away from the Mutual Funds. Customer is the king! If the majority of the customers decide to say no to a product, there is no way it can be sold. Filing a lawsuit or PIL in the court may take ages for things to get resolved. Best way for people who want to have efficient investment and better money management is to say no to such products, if they believe that these products are doing no good to their money. Be that product be Mutual Fund, Insurance Policy, ULIP, Index Fund or ETF. Each time I exit from a product after I discover that it is not good, I make sure that I write a letter to the company concerned and clearly state the reason why I am exiting from the product. I also send a copy of that letter to SEBI/IRDA or other regulatory authorities. I know that it is something like wasting time, effort and energy, but I don’t see anything wrong in letting people and authorities know what I believe if I have a genuine reason and data to prove my point.

I know readers are desperately waiting for my articles on Derivatives. I want to borrow some more time because explaining derivatives require a lot of figures and diagrams. Preparing them on a computer is a tough task. My job does not allow me to prepare articles fulltime. I’ll start posting the articles once I have am ready with the minimal set to begin with.

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You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.