To help investors assess the quality of their investments
and calibre of their fund managers, India’s capital market regulator for the
first time has asked the Rs. 6.8 trillion mutual fund industry to disclose
every detail of the schemes it sells.
In a recent letter, the Securities and Exchange Board of
India (Sebi) has asked the country’s 44 fund houses to provide details of all
their schemes, the common benchmark and their returns, returns since inception
of a particular scheme, and benchmark of the schemes and their returns.
Besides, they have been asked to disclose the scheme returns
vis-a-vis the common benchmark and the scheme benchmarks; their returns in the
past six months with respect to the benchmarks; their returns during the fiscal
year 2009, 2010 and 2011, and their compounded returns in the past three and
five years.
For equity schemes, 30-share bellwether equity index Sensex
and the broad-based 50-stock Nifty are common benchmarks. For short-term and
long-term debt schemes, one-year treasury bills and 10-year government bonds
are common benchmarks, respectively.
According to data available with Capitaline, which provides
data on Indian industry and capital market, as on 31 December, there were 336
equity-oriented schemes, of which 324 were at least a year old.
Out of these 324 schemes, 142 schemes underperformed the
Sensex and Nifty, with a fall of more than 24.2% in their net asset values. For
the three-year period ending 31 December, 123 equity schemes underperformed the
Sensex with less than 16.7% returns. Similarly, for a five-year period, 79
equity schemes underperformed the Sensex.
Sebi has also asked the asset management firms to disclose
the assets under management (AUM) of the schemes, both current, past fund
managers of the schemes and their tenures.
To assess the growth and the present condition of the
industry, Sebi has also asked the fund houses to disclose the number of
investor folios for each scheme for the first nine months of the current fiscal
year and three past years —2011, 2010 and 2009.
“Sebi wants mutual funds to make more disclosures about the
performance of their schemes and their fund managers. This is essential to
enhance transparency and help investors take an informed decision while
investing,” said a person with direct knowledge of the development, who spoke
on condition of anonymity.
Legally, Sebi cannot force a fund house to perform but if
the performance of the schemes and the fund managers are revealed to the
investors in detail, they will be able to judge better, the person added. Mint
has reviewed a copy of the Sebi note.
As on 10 February, according to Value Research India Pvt.
Ltd, a New Delhi-based fund tracker, schemes that invest in gold top the
returns chart with an average one-year return of 36.65%.
Equity FMCG (fast-moving consumer goods) schemes follow with
35.77% yields for the period.
All other equity-oriented schemes fetched lower average
returns than even debt-oriented ones in the industry. Infrastructure and
technology sector-based schemes were the worst performers with -3.06% and
-1.65% average returns, respectively, during the past one year, according to
Value Research.
The 30-share bellwether index of BSE, Sensex, is currently
trading 1.64% above its level a year ago. The 50-stock Nifty of the National
Stock Exchangeis 4.15% above its year-ago mark.
Till now, fund houses were required to only disclose the
returns of the schemes vis-a-vis their benchmarks and since inception.
“Sebi wants fund houses to disclose upfront the details of
the schemes and the fund managers in all investor application forms, brochures,
advertisements, promotions and any such activity undertaken to reach out to
prospective investors,” said the CEO of a large private sector fund house, who
declined to be named.
Of late, the regulator has been informally insisting the
fund managers to perform and reduce the number of schemes to simplify the
selection process of funds by investors. In line with this, in 2010, Sebi
allowed fund houses to merge schemes with similar fundamental attributes but
without any significant corpus in the portfolio.
While the earlier move will simplify the selection process
in terms of number of schemes to choose from, the latest move will let an
investor junk the non-performing schemes from their portfolio.
The disclosures will also help the regulator to assess the
state of the fund industry and clear only those new fund offers that are
genuinely helpful for the investors and not merely a product to earn
commissions from investors.
Incidentally, last June, in a mutual fund summit held in
Mumbai, Sebi chief U.K. Sinha had asked the fund houses to reveal the track
record of their fund managers.
Sinha has been taking a number of initiatives to help mutual
fund investors take better decisions while investing as well as ensure growth
for the industry. His moves are well in line with the steps taken by his
predecessor C.B. Bhave.
In the 2010 summit, Bhave had criticized the industry for
merely floating thousands of schemes without much meaning for the investors.
“Even if you put before me 3,000 investment products, I
won’t know how to choose from those products. I’ll have no idea of which scheme
is good for me. If you really want to reach to the so-called small investors in
whose name you do everything, does he need 3,000 options? Is there really so
much of innovation that is going on? Are these schemes really so different from
each other or were there incentives operating in the market that made us
generate these 3,000 options?” Bhave had asked.
Source: http://www.livemint.com/2012/02/12225310/New-disclosure-rules-for-MFs-t.html
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