Mutual Funds may have to keep PMS biz separate

ASSET management companies (AMCs) that provide portfolio management services may soon have to maintain a “Chinese wall” between the two businesses, by ensuring that there is no conflict of interest.

Capital market regulator the Securities and Exchange Board of India (Sebi) has proposed to review its mutual fund (MF) regulation that allows asset management companies to carry out other businesses, such as portfolio management service (PMS). Some of the leading fund houses provide the portfolio management service under the same umbrella by sharing infrastructure facilities.

The reasoning within Sebi about this proposal is that investment decisions in the MF business should not be shared with its portfolio management segment. Sebi fears that the AMC might priortise the portfolio management business over the MF business as the fund house is allowed to fix remuneration to distributors according to the services provided.

The issue is expected to be discussed when the regulator’s advisory committee on mutual funds meets on Monday.

The meeting will also discuss whether the Real Estate Investment Trust proposal should be continued or withdrawn or merged with Real Estate MFs. Besides, the committee that has representatives from the industry, law firms and investor associations, is likely to discuss the fungibility of expenses.

Fund houses now charge about 2.5% of the assets under management of the schemes as fund management fees annually . This fee typically covers management fees, operating expenses and trail ommissions. The regulator may consider providing flexibility to fund houses to charge management fees which is currently capped at 1.3% within the fund management fees.

Besides the total expense ratio the regulator has also proposed an enhanced performance measurement disclosure. Although the industry body Amfi, has put in place a lot of methods of disclosures, the regulator may be looking at having uniform dates across all funds that would help retail investors better understand the performance about their MF investments, said a person faimiliar with the development.

At present, schemes end in different periods for all the fund houses. Sebi is also looking at having an institutionalised way of doing the distribution, wherein fund houses will have to supervise the distributors. Besides, the regulator may also ban fund houses from selling equity options.

Source: http://economictimes.indiatimes.com/Mutual-Funds-may-have-to-keep-PMS-biz-separate/articleshow/5992904.cms