Mutual Funds and Entry Load

What is Mutual fund?

• They accept money from common people and invest it in shares and bond marks.
• And whatever profit / interest they make, they give back to the customer after cutting their profit Margin.
• A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities
• A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. 

What the Entry Load?

• Mutual fund company pays Commission to the distributors (those agents  / brokers etc), to market and sell their schemes.
• Earlier Mutual funds used to charge 2.25% entry load from customers.
• Meaning, if you give Rs.100 to the agent, the mutual fund company will only invest Rs.97.75 in various shares, bonds etc. while the Rs.2.25 was paid to the agent who introduced you to the scheme and filled up your paperwork etc.
• SEBI chairman believed that it is not good, these middlemen are not adding any value to the investment. hence he banned Entry load thing from Aug’09
• Result: the agents started selling other products where Commissions are higher. Mutual funds started losing clients. After all this mutual fund/ pension /insurance / childplans/ ULIP etc is a game of marketing (and fooling) people.
• So in June 2012, the mutual fund-walla went to Finance minister and asked him to resume the Entry load mechanism.
• FM has asked SEBI to look into the matter. So the matter is still being looked into.
• SEBI chairman still says that entry loads are not good. At most we can allow MF to invest in Rajiv Gandhi equity saving scheme (RGESS).