Mutual funds upset over SEBI’s idea of forced listing of units on stock exchanges

The move will escalate compliance burden on AMCs who see no value addition to investors

Market regulator Securities and Exchange Board of India's (SEBI) intention to mandatorily list all mutual fund schemes has received widespread flak from the industry. According to industry players speaking to Moneylife on the condition of anonymity, listing fund units on the stock exchanges will not provide any value addition to investors but will only burden them with additional compliance requirements. They complain that they are already inundated with excessive compliance work after the sweeping changes brought in by the regulator over the past one year.

Partly due to such frequent and extensive changes, equity mutual fund schemes have witnessed Rs11,560 crore of redemption since the regulator abolished entry loads in August 2009. Since November 2009, the industry has lost a whopping 8.33 lakh equity folios till July 2010.

In a move to counteract the sudden fall in mutual fund inflows, the regulator allowed trading of fund units on the stock exchanges. National Stock Exchange (NSE) started its online trading platform for MFs on 30 November 2009 and the Bombay Stock Exchange (BSE) launched its BSE StAR MF platform on 4 December 2009. However, the volumes have been meagre so far. In July 2010, the NSE recorded 2,340 transactions with Rs20.65 crore of net inflows.
Last week, the regulator asked fund houses to facilitate smoother transfer of mutual fund units between two demat accounts. This too is going to increase the cost for fund houses without any material benefit to investors. Moneylife had earlier reported on how the regulator was seeking bank-sponsored mutual funds' help to boost trading volumes on the exchanges which received a tepid response from bankers.

Now in another forced measure, the regulator has asked all fund companies to compulsorily list their units on the exchanges. "The regulator has sought feedback from us. We will be replying in a few days. The cost of listing mutual fund units is less compared to stocks. All our equity schemes are already listed. We are sorting out the operational issues. The compliance department will have a tough time ahead," said an official who did not wish to be named.

In order to list units on the NSE, mutual funds with a corpus up to Rs100 crore have to cough up Rs16,000 initially; if the tenure of the scheme is more than six months, the listing fee as applicable for multiples of six months will be levied. Similarly, the initial listing fee for a scheme whose corpus exceeds Rs1,000 crore is Rs1.25 lakh.

Unlike MFs, companies have to shell out Rs25,000 as initial listing fees and have to incur an additional annual listing fee depending on the paid-up share capital of the company. As the share capital goes up further, the fee also goes up. Currently 20 fund houses have listed their schemes on the NSE while the Bombay Stock Exchange (BSE) has 23 AMCs on board.

Source: http://www.moneylife.in/article/72/8538.html