ICICIDirect is know for it’s shady practices. They are at it again with the SEBI ruling on Mutual Fund Entry Loads which comes in to effect today (August 1, 2009). I will show you how they are out to confuse people and how their entire approach is crafted to benefit the rich customers at the expense of the average Raju.
I am customer of ICICIDirect. Yes, I know. Pathetic. I signed up in late 2004 and since I was primarily a Mutual Fund investor I stayed with them even though they are the worst in terms of transparency and the amount of money they suck off the customer by confusing them.
They are at it again and I am spending this weekend revisiting all my ongoing “SIPs” through ICICIDirect. It started with an email from ICICIDirect on July 29, 2009. You can see the entire text of the message in the image at the bottom of this post. It is a long email with examples and references to the SEBI ruling.
They present the investor with two scenarios. The first is for people who have a corpus of more than 8 lacs invested in Mutual Funds through ICICIDirect. All such investors will not be charged anything for their mutual fund purchases.
Okay. So far so good. If you are rich and have a pot of rupees invested via ICICIDirect then you are in luck.
Now lets look at the rest of the email and see the second scenario for the rest of us poor investors trying to make money on the stock markets. For all such investors ICICIDirect will charge a “Flat Rate”.
- For Regular MF Unit Purchases (called “Lumpsum Investments”): Rs. 100/- per transaction.
- For SIP based MF Unit Purchases: Rs. 30/- per transaction.
ICICIDirect has provided a very nice example:
Lots of savings, no? Very very magnanimous of ICICIDirect, no?
How many people put in Rs. 10,000/- a month is a single SIP? I don’t. I put in more than that a month but not in a single transaction. I invest in a number of funds each month. The amounts vary between Rs. 1000/- to Rs. 3000/- per fund. Lets say my total is Rs. 10,000/- per month in 5 funds, distributed as follows:
So what would be the Entry loads I would pay before and the new commissions I will pay after Aug 1, 2009?
Do you see it now? For the last two SIPs I will actually pay more to ICICIDirect than I would have under the old Entry Load structure!
Why is that?
So any transaction below Rs. 1333.33/- will hurt the investor. That is the “Break Even” point where you pay the same amount as you did before.
In my experience most retail investors put in monthly SIPs in the Rs. 1000/- range. And I expect most of them will not read through the long email from ICICIDirect and will not do such a calculation. They will end up paying ICICIDirect at 3% instead of the old 2.2.5%. And since ICICIDirect has already sent all investors a nice long email as per SEBI’s ruling they are not liable for any mistake on the Investor’s front. No money will be refunded if you, the investor, do not read through the email carefully and analyze the details.
The richer investors will be happy. They will pay less. The poorer, as usual, will pay a price for the “privilege“ of investing in Mutual Funds via ICICIDirect.
So the Distributers are happy. They still have their collective Pricks up the investor’s A Holes.
I thank SEBI for taking up the cudgel on behalf of the retail investor. However I think SEBI needs to pay more attention to it’s homework. Because in the end it is the poor investor who pays the price.
- SEBI’s Circular regarding Mutual Fund Entry Loads: http://www.sebi.gov.in/circulars/2009/imd_cir_3009.pdf, Also available here.
- The Excel calculations spread sheet I used.
The email sent by ICICIDirect –
Please read between the lines, do a little homework before you spend your money.