Friday, July 24, 2009

The Indian Mutual Fund IPO Rush has started

The game to gather the maximum amount of money before the new SEBI regulation of not allowing any entry loads (and consequent commissions to distributors) kicks off on August 1 has started in earnest. nearly all big fund houses are running after new IPOs with fancy names to gather as much money as possible to rake in the moolah. They are afraid of losing out on business after the new regime starts. Then only funds with "superior" short term performance will be able to get more money from investors and other funds whose performance is lacking will not be able to "bribe" their way into investor portfolios. In the existing system, large distributors promise fund houses large investments in return of hefty commissions (6-7%) and foreign trips etc. All this comes from the entry loads charged by the funds to its investors. Fund Houses choose this route to bring in money as their revenues depend on the assets they manage as fund management charges are a percentage of the totals AUM (assets under management).

Since, SEBI has put a stop to this practise nearly everyone is trying to get in as much money as possible and then hold onto it by increasing exit loads. Most fund houses have increased exit loads in the last month stating that its good for investors to remain invested in these volatile markets and not take a directional call!!!!

So, beware of the new IPO rush. Wait out for a few more days and choose a fund base don its merit and not becuase someone is selling it ver hard to you.

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