This article in financial times talks about fund are using entry load fee to exploit naive investors and also how UK regulator is looking into the issue. As the article has noted India is ahead of Europe in this issue. Indian regulator SEBI has banned entry load of mutual funds in 2009. I have mentioned this fact in my blog earlier here.
An interesting difference I found in this article between India and UK is that Indian investors are charged less if they directly buy from the fund (direct option) while it is reverse in UK. This doesn’t make sense because if the investor directly approaches the asset management company(AMC), AMC doesn’t have to pay any amount to the intermediary and they should pass on this benefits to the investor. But it seems European AMCs prefer having investors coming through regular channels.
I think I am missing something in the whole issue. The article does note that the investors directly approaching the AMC will increase costs over the regular channels like exchange but I am still not convinced that the costs increase to that extent. because of the cost structure the investors who are approaching the AMC directly can be considered as naive investors. This is exactly opposite in India. Investors directly investing with the fund management company are considered intelligent!! In fact SEBI has been bringing several new regulations into effect to ensure that investors directly approach AMC rather than regular channels.