After introduction of Direct plans in mutual funds few fund house like ICICI – Prudential mutual funds tend to increase the exit loads & increased exit load up to period of 18 months for selected equity schemes.
Under such scenario where most of the mutual funds are trying to retain the investors for longer period of time,eyebrow raised from industry when HSBC mutual fund announced that there won’t be any exit load on mutual fund schemes.
Exit load on HSBC mutual fund schemes will be Nil effective from April 01, 2013.
Though no exit load schemes looks attractive,there are few consequences need to be considered:
- No exit loads will lead to churning by advisers along with big investors.It will be much more easy arbitration opportunity for distributors than schemes having exit loads.
- It can affect scheme performance as fund manager may need to consider untimely redemption pressure.Fund manager may need to maintain higher cash component or may require borrow money to fulfill the redemption pressures.Either scenario can affect the performance of mutual fund scheme.
- There will be short term capital gain tax though there won’t be any exit load & investors may need to take care of the same.
- Exit load is not that much important criteria to select mutual fund scheme unless its applicable for much more longer period like up to 3 years.
Few years back,similar experiment was done by Bharati-AXA mutual funds [now known as BOI-AXA],for their equity schemes – Bharati AXA Equity & Bharati-AXA Infrastructure.But within couple of months only they reinstate the exit load of 1% for one year..Lets check what happens with HSBC mutual fund schemes….
