Usage of load account
Summary
SEBI mandates that mutual fund load balances be segregated into pre-August 2009 and post-August 2009 accounts to ensure uniformity. The circular restricts the annual usage of the legacy July 31, 2009 balance to one-third per financial year, while allowing unrestricted use of accretions thereafter. This directive supersedes previous instructions and is issued under Section 11(1) of the SEBI Act to protect investor interests.
Text
There shall be no entry load for all mutual fund schemes.
The upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.
Exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately.
These load balances are maintained as ‘liabilities’ in the books of the scheme and are not included in the net asset value (NAV).
The load balance shall be segregated into two accounts in the books of accounts of the scheme - one to reflect the balance as on July 31, 2009 and the other to reflect accretions since August 01, 2009.
The load balances can be used for marketing and selling expenses including distributor’s/agent’s commissions.
However, not more than one- third of load balance as on July 31, 2009 shall be used in any financial year including the current financial year 2010-11. It is clarified though the unutilized balances can be carried forward, yet in no financial year the total spending can be more than one third of the load balances on July 31, 2009.
The accretions after July 31,2009 can be used by mutual funds for marketing and selling expenses including distributor’s/agent’s commissions without any restrictions mentioned in para 3.3 above.
This circular supersedes all instructions regarding use of load accounts issued subsequent to the circular dated June 30, 2009 mentioned above.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Usage of load account. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.