Mutual fund investors to benefit as Sebi reduces exit load limit from 5% to 3%

To improve investor protection, enhance transparency, and increase financial inclusion, the Securities and Exchange Board of India (SEBI) has reduced the maximum permissible exit load from 5% to 3%, as of 12 September, in the board meeting held in Mumbai.

By reducing the allowable limit, investors will get redemption money at cheaper rate and funds can become more attractive. Additionally, offering higher incentives to distributors to attract women investors from all cities promotes inclusion.  This could boost mutual fund inflows, lifting market sentiment.

Venkat N Chalasani, Chief Executive, AMFI, said, "We welcome Sebi’s progressive and well-calibrated reforms announced at its recent Board Meeting. The reduction in the maximum exit load from 5% to 3% further reinforces SEBI’s commitment to investor protection and transparency."

The regulator announced its decision during a press meeting, which included adjustments to exit loads and incentives for distributors. This initiative was also by the regulator, mainly aimed at reaching underserved investors in different parts of the country.

"The new incentive structures to expand mutual fund penetration beyond the top 30 cities and among women investors align closely with AMFI’s financial inclusion objectives," said Chalasani.

Mutual fund companies levy exit load fees when investors redeem units or switch schemes within a certain period after purchase. It is usually calculated as a percentage of the Net Asset Value at the time of redemption.

Although the current limit was 5%, mutual fund houses often kept it between 1% and 2%. By setting it at 3%, the regulator aimed to find a balance.

"Taken together, these initiatives will broaden investor participation, strengthen the long-term health of the mutual fund industry, and strike a thoughtful balance between regulatory rigour, investor protection, and ease of doing business,” adds Chalasani.

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