Single statement for all MF transactions

There is good news for mutual fund investors. Now, one no more needs to put multiple requests to fund houses to obtain account statements.

More than three years after the idea of a common statement for mutual fund investors having investments with different fund houses was conceived by the industry, the Association of Mutual Funds in India (Amfi), has finally implemented it, effective from October.

The industry has implemented issuance of Consolidated Accounts Statement (CAS) to its investors. So, do not be surprised if you get a single statement instead of many, containing all transactions during the month, irrespective of the fund houses you have done transactions with.

In a statement issued on Thursday, Amfi said, “Commencing of the transactions from the month of October, 2011, CAS will be issued as a monthly statement to investors, if there are any transactions during the month.”

H N Sinor, chief executive officer, Amfi, said, “This is an investor-friendly initiative to allow investors a single-window view of all their transactions in mutual funds.”

The consolidation of folios will be on the basis of the Permanent Account Number (PAN) provided by investors. This is in compliance with the amendment to the Securities and Exchange Board of India's (Sebi) regulations with regard to issuance of monthly CAS.

According to fund managers, the move is a step in the right direction and will further simplify things for the investors. They add that it will also have its limited positive impact on the fund houses as single statement reduces the cost to some extent.

In recent years, Amfi along with Sebi has been attempting to make mutual funds an easy tool of investment to the customers.

Mutual funds continue to have a penetration of as low as three to four per cent, the lowest among all the investment options.

Currently, there are 43 players in the fund industry, with an overall asset under management of close to Rs 7,00,000 crore. However, of the country’s population of 1.2 billion, the industry’s investors’ base is less than 50 million.

Source: http://www.business-standard.com/india/news/single-statement-for-all-mf-transactions/455854/

Some big companies indulge in insider trading: UK Sinha, Sebi chairman

In the eight months since taking over as chairman of the Securities and Exchange Board of India, UK Sinha has taken measured steps on some policies relating to the capital market. Sinha, a former civil servant who had earlier worked in the finance ministry as joint secretary in charge of the capital markets and external commercial borrowings division besides a stint as CEO of UTI Mutual Fund before joining Sebi, spoke to ET NOW's George Cherian on a range of issues. Excerpts:

You have undertaken to overhaul various functions within Sebi and also the organisational structure. What led to this thinking and also, how is the plan progressing?

We believe that regulators must also do a serious amount of introspection about the impact they have created. I am reminded of what the Persi Mistry Committee had recommended that there should be a regulatory impact assessment.

Unless any regulator looks at introspection and also at how it performed with regard to its functions and tasks, there may be the view that we are doing very well and we did not look at ourselves. So accountability and impact assessment is what were at the back of our minds.

Sebi is perhaps the first regulator in the country to introspect in this serious a manner by trying to engage an outside consultant. We have also been influenced by the fact that after the global developments, many of the major companies are thinking on similar lines.

We have also set up an international advisory board. We are possibly the first regulator in the country to work in this direction. We have got a group of eminent people - practitioners, regulators and academics- with whom we will interact every six months. We will discuss new developments in the world and how to tackle them.

Investor faith in Indian equity market is possibly the lowest among any country in Asia. What are you doing to address that?

If you look at the Asian market, wherever investor interest has gone up substantially, it has happened primarily on the back of pension money. So, my first case is that it's very difficult for me and you or anybody to reach out to every household in the country to collect savings.

Wherever there is a pool of money, which represents household savings, and if that pool is brought into the market, then the market will pick up. It is also relevant from the point of view of foreign versus domestic institutions. Domestic institutions have to be strengthened to provide a counter balance to the foreign investor.

Foreign investors are welcome but to depend substantially on them and not develop our domestic market is perhaps not a good strategy. If you have noticed the insurance industry has been able to get more money than the mutual fund industry and that has provided a good counter balance.

Regional stock exchanges aren't faring too well with all of them barely seeing any trading. How long will it be before exit guidelines for these exchanges are issued? Also, what's the progress with the Jalan Committee report?

This is something we must have behind our backs very soon. There are historical reasons and some political and social reasons behind creating so many exchanges but now that we have a national system of trading and anonymous trading, many of them find that their existence is seriously challenged. Sebi came out with some policy in 2008 but it has not worked.

We have again come out with an internal discussion paper. So far, 17 of the regional SEs have got recognition and four haven't. These 17 exchanges have very little trading going on. And one out of these 17 has had no trading for the last 10 years. We are trying to look at two important aspects. One is how do we provide an exit to the companies and to the shareholders of the companies that are listed only on that particular exchange.

The second is what happens to the assets and property of the stock exchange once we are sure that they are allowed to completely exit or fade away. We are trying to look at both from the legal aspect and from the point of view of fairness. My feeling is that what we did in 2008 has not worked. We are trying to combine our approach on regional stock exchanges along with the exchanges on Jalan Committee report because instead of having a policy which deals primarily with four out of 21 exchanges, it is better to have a policy for all of them.

On the issue of insider trading, how confident are you about your surveillance systems?

Over the period of the last three years, Sebi has been able to strengthen the surveillance system tremendously. We have invested heavily on technology and systems. We have now moved to a higher area called data warehousing and business intelligence.

So phase one of that has been implemented and next two phases are also in the process of being implemented in the given time frame. That gives Sebi a huge capability to have a look at any pattern about trading in any particular area. I would like to take this opportunity to tell people through you that we are watching very seriously.

Some of the good corporates, without realising that this is something that is not right or on the wrong side of law, have been indulging in this because somebody has advised them that this is alright to do. I would like to tell people that now our capability has enhanced. People should try and keep an eye on compliance and regulatory rules themselves.

All intermediaries and companies should look at their own systems. Once we find somebody on the wrong side, we will have no recourse but to take appropriate measures, a deterrent measure. Those who are not doing it deliberately, my message to them is that you should be ready to face the consequences of deliberate action. It is good for you to look at your compliance and legal systems. Spend some time and energy on that if you are the top management of the company.

Sebi's recent draft regulation on investment advisors has attracted criticism. Some are questioning the rationale behind the proposal of a self-regulatory organisation (SRO) for advisors. Others claim only mutual fund agents have been targeted as the draft exempts insurance brokers and advocates from compulsory registration. What is your response?

Very simple. If somebody's case is that there should not be any SRO, that Sebi should be regulating them directly, on this point my position is that we don't have the capacity. Even if we go down that path, it will take us years to create that capacity and we can't wait till then. The regulation of investment advisors and distributors and the conflict in both businesses is something which needs to be done. We are willing to accept suggestions but I suspect that there are certain segments which do not want any regulation to come in but I'm sorry. I cannot allow that.

What are your views on the consent mechanism that Sebi has been using to settle cases? How has it worked so far?

It has worked. First of all, let me dispel any feeling in anybody's mind that this is something of a negotiation between Sebi and intermediaries. The law provides for it, the Sebi Act provides for the mechanism and it has withstood the test of time or legal scrutiny. We have some guidelines since 2007 on how to go about this. The criticism that you are referring to is the perception in the minds of the people that perhaps we have not been consistent.

Perhaps a person cannot predict if I have committed a crime or an offence like this, where will I end up, so there is lack of consistency. I would like to admit that to some extent this criticism is valid. We conducted an in-house study and we are ourselves of the view that there have been variations for similar cases.

The amounts we have been able to collect or charge people - the consented amount or the terms and conditions we have imposed have had variations, so right now, Sebi is in the process of tightening the consent mechanism and there are various issues.

For example, whatever we prescribe should be in the norms of legal scrutiny and whatever we prescribe has to be fair and equitable. We are looking at that area very seriously and we are consulting some outside experts so the entire consent mechanism is being re-looked. But as a mechanism, consent is good.

Source: http://economictimes.indiatimes.com/opinion/interviews/some-big-companies-indulge-in-insider-trading-uk-sinha-sebi-chairman/articleshow/10774020.cms?curpg=3

Fund houses pay fat commissions to sponsors

Mutual Fund (MF) houses are increasingly falling back on their parent companies to sell their own products. This is, especially true in the case of bank-sponsored fund houses or those funds that have sister companies in the financial distribution space. And parents are happily obliging. 

As per the fund houses’ disclosures of commissions paid to distributors, most bank-sponsored fund houses have paid a large chunk of their commission to their parent bank or company. In other words, a significant chunk of their inflows come through their parent company’s branch network.

For instance, roughly 66.50% of commissions that Axis Asset Management Co. (AMC) Ltd paid to all major distributors in the fiscal year 2010-11 went to just one entity—Axis Bank Ltd, Axis AMC’s sponsor. Of the Rs. 96 crore worth of commission that SBI Funds Management Co. Ltd paid to its major distributors, it paid Rs. 40.62 crore to State Bank of India and its affiliates such as State Bank of Travancore and State Bank of Bikaner and Jaipur.

Small wonder then that 11 of the top 20 distributors in the Rs. 6.4 trillion Indian MF industry are banks and they earned a total of Rs. 645.2 crore in the fiscal year 2010-11, as per data provided by the Association of Mutual Funds of India (Amfi); the MF industry’s trade body. Combined with the rest of the top 20 that also consists of national distributors, they earned a total of Rs. 1,032.8 crore worth commissions.

The new rule

As per a circular that the capital market regulator, Securities and Exchange Board of India (Sebi), issued on 22 August, fund houses are mandated to disclose the commissions they pay to distributors once a year. They will need to disclose this information on their website and Amfi will need to disclose consolidated data on its own website.

Sebi rules say that fund houses must disclose commission of all distributors who are present across at least 20 locations and/or has got inflows in excess of Rs. 100 crore from their retail and high networth clients and/or have received commissions of at least Rs. 1 crore per annum across the MF industry and/or received commissions of at least Rs. 50 lakh from a single fund house. A cursory glance across disclosures made by large fund houses reveals that each of them had about 300 to 500 distributors in their fold that satisfied at least one or more of Sebi’s criteria.

Strong parent network

Bank-sponsored fund houses are only too willing to fall back on their parent bank’s branch network to get inflows. Both existing fund houses as well as newly launched fund houses have consistently tapped an in-house customer base. For instance, when Axis AMC launched its operations in 2009 with its first equity scheme, Axis Equity Fund, it collected Rs. 909 crore during its new fund offer period. Of this, Axis Bank mobilized around Rs. 700 crore or 75-80% of the amount. Out of 138,000 investors of Axis Equity Fund, 95,000 came through the bank’s network.

“After the regulatory changes and market volatility of 2008 and 2009, more and more funds have moved towards their in-house distribution channels to tap their captive investor database to be able to get the best bang for their buck. Earlier, most of your distributors got money for us because commissions were paid out of entry loads. But after Sebi abolished entry loads, life became tough for the MF industry,” says Akshay Gupta, managing director, Peerless Funds Management Co. Ltd. “It is very comforting having the support of SBI’s 18,000-strong sales force and its elaborate branch network all over the country,” said Deepak Kumar Chatterjee, managing director and chief executive officer, SBI Funds Management Pvt. Ltd, in an interview earlier.

Though fund houses like Axis AMC appear to have a disproportionately higher level of dependence on Axis Bank, it doesn’t bother the fund house. “Yes, Axis Bank does get us a significant pie of our inflows and it’s not a bad thing at all. But we do engage with all our distributors. As our asset base grows larger, I am sure that while Axis’s contribution will continue to be strong, other distributors’ share will also go up in our overall pie positively,” says Karan Datta, national sales head, Axis AMC. Axis Bank’s 1,500 branches spread across 600 cities are available for Axis AMC.

It’s not just banks that push their own subsidiary fund houses’ MF schemes. Large financial institutions that have their internal distribution network also appear to be pushing their in-house fund houses. For instance, of the Rs. 5.20 crore commission that L&T Asset Management Co. Ltd paid to distributors in the last fiscal year, Rs. 1.77 crore (or 34% of the total amount) went to two of its sister firms, L&T Capital Co. Ltd and L&T Finance Co. Ltd. In their pecking order, these two firms got the highest commission among all of L&T AMC’s distributors.

“In troubled times, we will depend on our in-house distributors to sell our products; it’s logical. Retail inflows hasn’t just dropped in India, they have declined globally. Therefore, a fund house’s promoter will put immediate pressure on his own distribution force to sell in-house products first,” says a chief executive officer of a fund house, who did not want to be named.

After Sebi abolished entry loads in August 2009, fund houses have found it tough to convince distributors to sell MF schemes. Volatile markets ever since the global credit crisis that hit in 2008 haven’t helped matters either. As per Amfi figures, the MF industry has seen a net outflow (more money went out compared with what came in) of close to Rs. 18,680 crore in equity funds between August 2009 and July 2011. Though since the entry loads got abolished, the amount of new fund offers went down significantly.

Leaving the nest and flying away may not be, after all, the best solution for the MF industry as more and more financial institution-sponsored fund houses—armed with an in-house distribution sales firm—aim to set shop.

Source: http://www.livemint.com/2011/11/17221422/Fund-houses-pay-fat-commission.html