Sebi chairman U.K. Sinha says 50% of the schemes of nine
fund houses have underperformed their benchmark indices and there were nine
other fund houses where up to 50% of the schemes were underperformed by their
respective benchmark indices
The Securities and Exchange Board of India (Sebi) on
Thursday raised concerns about the performance of mutual fund (MF) schemes and
non-compliance at some fund houses in the Rs 6.64 trillion asset management
industry that has been demanding friendlier regulations ever since the
regulator scrapped entry fees in August 2009.
While acknowledging sluggish investment sentiment in the
market, Sebi said it’s also concerned about the industry and has reached out to
stakeholders in recent months for suggestions to revive the industry’s growth.
While doing this, the capital market regulator felt that the industry should
also highlight the performance of its schemes. According to Sebi, there were
several fund houses whose schemes were beaten by their own benchmark indices.
“This should be a cause of concern. Sebi is going to engage
with these fund houses... as to why on a consistent basis their schemes have
not performed,” said U.K. Sinha, chairman, Sebi.
He said over 50% of the schemes of nine fund houses have
underperformed their benchmark indices and there were nine other fund houses
where up to 50% of the schemes were underperformed by their respective
benchmark indices.
“Some AMCs’ (asset management companies) schemes have
underperformed since inception. Sebi will engage with them and ask what
measures they are taking to address the issue. We will perhaps review their
performance on a half-yearly or annual basis,” Sinha said at industry lobby
Confederation of Indian Industry’s annual mutual fund summit.
Moreover, Sebi was concerned about fund houses flouting
regulations on several fronts in recent months. “One scheme even had a single
entity investing at least 25% of the assets under management (AUM) in the
scheme. Then we found that a mutual fund was investing money in the fixed
deposit of a large bank, which itself is an investor in the fund,” Sinha said.
Rules stipulate that a single investor can only invest up to 25% of the AUM in
a mutual fund scheme.
Sinha said the losses of certain mutual fund schemes were
being transferred to other schemes. “This can’t go on and Sebi will not be
silent on these issues,” Sinha said.
At least three fund houses refused to comment citing the
sensitivity of the issue.
Sinha reiterated that the regulator will not come in the way
of the industry’s growth.
The market regulator recently met members of the mutual fund
industry for suggestions on reviving growth. Sinha said that Sebi will shortly
take actions in line with the suggestions it received.
“We have received several suggestions and most of them
(industry participants) are against reintroduction of entry loads,” he said.
Removed by Sebi in August 2009, entry fees were charges (up to 2.25%) that
mutual funds collected at the time of investment from the investor, and
eventually passed on to the distributor as commissions.
“We have been advocating for a variable load. There are
different types of investors with varied appetite and needs. So we need a
variable load structure in place,” said Anthony Heredia, managing director, Morgan
Stanley Investment Management Pvt. Ltd. “But the overall growth story of the
fund industry is intact. For instance, once the interest rates come down, we
should start seeing the return of bond funds. The next 12-18 months could be
difficult for the markets, but we see a strong five-year story with the asset
base multiplying manifold at this rate of growth and savings behaviour in the economy.”
Sinha urged the industry to bring in pension-oriented funds
as they have a large pool of money and a longer investment horizon.
Sebi said that it is in discussions with the income tax
authorities to treat such mutual fund schemes at par with pension products in
terms of tax rebates. But the industry sounded reluctant to introduce such
products.
“Pension money comes in as investments for 20 years. Fund
managers want immediate commissions,” said Dhirendra Kumar, chief executive
officer, Value Research Online, a Delhi-based mutual fund tracker.
The regulator is also in the process of formalizing
regulations for investment advisers. Indian financial regulators have been
working on a comprehensive set of regulations for investment advisory services
that straddle financial products. Last year, Sebi had circulated a concept
paper on investment advisory regulations.
Sinha said that Sebi officials recently met those of the
Financial Stability and Development Council (FSDC), which has broadly accepted
Sebi’s suggestions on investment advisory, and the market regulator will
shortly introduce the final set of rules.
The regulator is also working on guidelines for initial
public offerings (IPOs), Sinha said. “We are looking at how to increase the
penetration of IPOs and ensure enhanced investor protection. We will come out
with detailed guidelines in two-three months. Our job is to ensure that the
rules of the game are played properly.”
Taking note of slowing foreign investment through
participatory notes or PNs, Sinha said the regulator and the government are
actively trying to encourage foreign investment through the recently introduced
channel called qualified foreign investor route.
Source: http://www.livemint.com/2012/06/21130104/Sebi-raises-concerns-about-MF.html?h=A1
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