Thursday, March 1, 2012

SEBI mandates separate fund manager for each scheme

One fund manager per fund is what SEBI is telling mutual fund houses. In a circular put up on its Web site, the capital market regulator has mandated that the asset management companies (AMCs) will appoint one fund manager per scheme so as to avoid any conflict of interest that might arise from managing multiples funds at the same time.

However, the circular makes it clear that the exception can be made in cases where the various funds managed by the fund manager have same investment objectives and asset allocations. This also applies to the usage of the same portfolio of instruments across all funds. In such a case, however, at least 70 per cent of the portfolio has to be replicated across the schemes for them to be managed by the same fund manager.

The circular adds that for compliance with the afore mentioned regulation AMCs should ensure that they have a written policy in place for trade allocation and that they ensure “at all points of time that the fund manager shall not take directionally opposite positions in the schemes managed” by the fund manager.
‘directionally opposite'

Consider a fund manager managing two equity schemes having portfolios that have 70 per cent of the stocks in common. Under such a situation, the fund manager cannot buy a particular stock in one scheme, while simultaneously selling the same stock in another.

This is what the SEBI circular refers to as taking “directionally opposite positions in the schemes.”

Also, in order to bring transparency while addressing the issue of conflict of interest wherein a fund manager is common across mutual fund schemes, the AMC should disclose on a monthly basis the returns provided by the fund manager for all schemes managed by him/her. The same applies for any scheme-related advertisement issued by the AMC.

In case, the difference between the returns provided by the schemes managed by the same fund manager if more than 10 per cent, then the trustee should be notified, as well a disclosure should be put up on the AMC web site.

The circular also clarified that the due diligence of distributors was the responsibility of the AMCs themselves and cannot be delegated to any agency. The AMCs, however, can take the assistance of an agency in carrying out the due diligence process.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2943088.ece?homepage=true&ref=wl_home

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