The Securities and Exchange Board of India (Sebi) is set to discontinue the differential
loads on high-value investments to provide a level playing field to mutual fund investors. This move will benefit the retail investors, who often end up subsidising their institutional counterparts.
A Sebi committee found it undesirable to have differential loads between corporates/high networth individuals (HNIs) and retail investors under the aegis of the same scheme. Retail investors subsidise large corporate investors as the latter are exempted from paying an entry load in return for putting huge money into the scheme.
There cannot be zero expenses for managing large investor funds, the Sebi committee concluded. The regulator is also looking at restricting the tenure of debt instruments held by liquid funds. In order to meet sudden redemption pressures, liquid funds may be disallowed from holding securities with a maturity exceeding 90 days.
Fixed maturity plans (FMPs) and liquid schemes were affected the most by a tsunami of redemption requests in October. A large chunk of portfolio was invested in papers with maturity ranging from six months to a year. The liquid schemes initially used their cash reserves to meet the redemption pressures. However, when cash reserves proved insufficient, mutual funds resorted to fire-sale of assets (largely money market instruments).
This, in turn, resulted in huge losses to the remaining investors. Sebi is mulling a ban on the tendency of fixed maturity plans to promise indicative returns/yields. Fund houses currently differentiate themselves by assuring indicative returns. This leads to mis-selling of these products as definite returns based instruments.
The market regulator may impose a sectoral cap of 20-25 % on the portfolio investments of mutual funds to enable risk-diversification. A recent analysis revealed that fund houses restrict investments to the banking, finance, telecom and construction sectors.
In a move that will bring cheer to the retail investors, the regulator may soon approve variable entry load. The application form will have an option for distributor commission to be paid by the investor. The draft standard form will be submitted by Amfi to Sebi shortly.
loads on high-value investments to provide a level playing field to mutual fund investors. This move will benefit the retail investors, who often end up subsidising their institutional counterparts.
A Sebi committee found it undesirable to have differential loads between corporates/high networth individuals (HNIs) and retail investors under the aegis of the same scheme. Retail investors subsidise large corporate investors as the latter are exempted from paying an entry load in return for putting huge money into the scheme.
There cannot be zero expenses for managing large investor funds, the Sebi committee concluded. The regulator is also looking at restricting the tenure of debt instruments held by liquid funds. In order to meet sudden redemption pressures, liquid funds may be disallowed from holding securities with a maturity exceeding 90 days.
Fixed maturity plans (FMPs) and liquid schemes were affected the most by a tsunami of redemption requests in October. A large chunk of portfolio was invested in papers with maturity ranging from six months to a year. The liquid schemes initially used their cash reserves to meet the redemption pressures. However, when cash reserves proved insufficient, mutual funds resorted to fire-sale of assets (largely money market instruments).
This, in turn, resulted in huge losses to the remaining investors. Sebi is mulling a ban on the tendency of fixed maturity plans to promise indicative returns/yields. Fund houses currently differentiate themselves by assuring indicative returns. This leads to mis-selling of these products as definite returns based instruments.
The market regulator may impose a sectoral cap of 20-25 % on the portfolio investments of mutual funds to enable risk-diversification. A recent analysis revealed that fund houses restrict investments to the banking, finance, telecom and construction sectors.
In a move that will bring cheer to the retail investors, the regulator may soon approve variable entry load. The application form will have an option for distributor commission to be paid by the investor. The draft standard form will be submitted by Amfi to Sebi shortly.
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