Online applications Mutual funds investors not aware of zero 'Front End Load' option

The investors in Asset Management Companies (AMCs) are not well aware of availing the option of zero 'Front End Load' (amount/fee deducted from unit holders) in case they apply for investment through online portal in line with the rules/regulations of the Securities and Exchange Commission of Pakistan (SECP). Industry sources said some AMCs charge fee from investors for managing their sales networks across the country rather than promoting free service through their online applications systems.
According to customers' experiences shared with this correspondent, some AMCs usually deduct an upfront amount from new and existing unit holders up to 3 percent of the investment value, and this translates into generation of millions of rupees in revenue to the companies. This charge is called the Front End Load or Sale Load.
According to the SECP, investors of mutual funds will be charged zero Front End Load, if he applies for investment through online portal. However, this option has gone largely unnoticed by investors. Some AMCs charge fee from investors for managing their sales networks across the country rather than promoting free service through their online applications systems.
While sales teams reach out across the market and acquire new customers for AMCs, the customers are unaware of the fact that they could also save their hard-earned money and avoid Sales Load by investing in the mutual fund of their choice directly. This investment can be made through the internet via the online platforms enabled by almost all AMCs without involving a sales network. However, when Asset Management Companies operate via a sales network, it incurs additional costs to them and the average retail investor is charged to meet the expenses unfortunately.
AMCs through their sales agents collect investment from investors, of which a certain amount is deducted before making investment in their designated or preferred choice of funds. Hence, the customers/investors take longer to return to breaking even on their investments because the amount that is actually invested will be lower than the payment made by the customer.
It is a general perception among investors that Front End Load is a mandatory fee of fund managers on the account of consultancy or customer support service. This is somewhat true where the AMC is using its network for facilitating customers making investment, however there is no significant role of network where the investor is making further investment using online portal.
According to the SECP, investors of mutual funds will be charged zero Front End Load, if he applies for investment through online portal. Unfortunately, this option has gone largely unnoticed by investor. The SECP has taken a commendable initiative by allowing encouraging a digital adoption and helping the public at large to ride the digital transformation wave that is overtaking the country. The initiative has the ability to increase growth of the industry drastically provided that AMCs educate awareness among potential investors.
The regulator lays emphasis on zero sales load policy in order to incentivise investors and make their investments in mutual funds free of service charge. Over the period of past five years, the mutual funds sector has witnessed significant growth by attracting investors and investment values. The sector is highly competitive for offering variable profit rates to their investors or unit holders through open end funds (conventional and Shariah-based). The potential for growth remains limitless as the ability to invest via the internet will create a much needed impetus by eliminating an additional cost. This can also be validated by the fact that online transactions shown by bank customers are at their highest levels this year compared to all other years, which is proof that the consumer is going digital.
There are 20 AMCs operating in the country with their 204 various mutual funds. These companies, usually called as fund managers, receive deposits of unit holders and invest their money in different venues to payback with varied or fixed rate of returns.
By end of 2015-16, the number of investors for close end funds stands at 32,660 with the investment worth of Rs 18.796 billion. The number of investors for open end funds stands at 221,018 with investment values of Rs 452 billion. The assets under management of AMCs have increased from Rs 546 billion as of June 30, 2016 to Rs 694 billion as of March 31, 2017, showing an increase of Rs 148 billion or 27 percent during the first nine months of FY 2016-17, the SECP data said.