Sebi amends valuation norms for MFs; raises transparency levels

The Securities and Exchange Board of India (Sebi) on Tuesday tightened valuation norms for money market instruments in a mutual fund scheme. The latest amendments have been made with a view to ensure that the value of the portfolio reflects the market situation to a greater extent.

All money market and debt securities, including floating rate securities, with residual maturity of up to or over 60 days will need be valued at the weighted average price at which they are traded on the particular valuation day. Earlier, the valuations norms were applicable only if the residual maturity was up to or over 91 days.

Further, as part of its attempts to further enhance transparency, Sebi has directed the asset management companies to disclose all details of debt and money market securities transacted (including inter scheme transfers) in its schemes portfolio on their respective website.

This information will also need to be forwarded to Association of Mutual Funds in India (AMFI). These disclosures will be made settlement date wise on daily basis with a time lag of 30 days.

On a different note, the regulator has also amended the advertisement code for mutual funds who will now require to disclose the dividends declared or paid in rupees per unit along with the face value of each unit of that scheme and the prevailing net asset value (NAV) at the time of declaration of the dividend. The fall in NAV post the dividend or bonus payout will also form a part of the advertisement. The impact of distribution taxes, if any, will also need to be properly disclosed.

In a separate circular, Sebi has clarified that the due diligence of distributors is solely the responsibility of mutual funds/AMCs. “This responsibility shall not be delegated to any agency. However, mutual funds/AMCs may take assistance of an agency of repute while carrying out due diligence process of distributors,” said the circular.

Sebi has also amended the way it addressed the issue of conflict of interest wherein a fund manager was managing more than on scheme. Sebi had mandated that the AMC needs to appoint separate fund manager for each separate fund managed by it unless the investment objectives and assets allocations are the same and the portfolio is replicated across all the funds managed by the fund manager.

Based on representations by the fund industry, the regulator has now decided that a replication of a minimum 70% of portfolio value will be considered as adequate for the purpose of compliance with the regulatory norms as a perfect replication across schemes is not always possible. The AMC, however, has to have in place a written policy for trade allocation and will have to ensure that the fund manager is not taking directionally opposite positions in the schemes managed by him.

The AMCs will have to disclose on its websites, the returns provided by the fund manager for all the schemes managed by him on a monthly basis. In case the difference between the annual returns provided by the schemes managed by the same fund manager is more than 10% then the same will have to be reported to the trustee and explanation for the same will need to be disclosed on the website of the AMC.

Source: http://www.financialexpress.com/news/sebi-amends-valuation-norms-for-mfs;-raises-transparency-levels/917914/0

SEBI mandates separate fund manager for each scheme

One fund manager per fund is what SEBI is telling mutual fund houses. In a circular put up on its Web site, the capital market regulator has mandated that the asset management companies (AMCs) will appoint one fund manager per scheme so as to avoid any conflict of interest that might arise from managing multiples funds at the same time.

However, the circular makes it clear that the exception can be made in cases where the various funds managed by the fund manager have same investment objectives and asset allocations. This also applies to the usage of the same portfolio of instruments across all funds. In such a case, however, at least 70 per cent of the portfolio has to be replicated across the schemes for them to be managed by the same fund manager.

The circular adds that for compliance with the afore mentioned regulation AMCs should ensure that they have a written policy in place for trade allocation and that they ensure “at all points of time that the fund manager shall not take directionally opposite positions in the schemes managed” by the fund manager.

‘directionally opposite'

Consider a fund manager managing two equity schemes having portfolios that have 70 per cent of the stocks in common. Under such a situation, the fund manager cannot buy a particular stock in one scheme, while simultaneously selling the same stock in another.

This is what the SEBI circular refers to as taking “directionally opposite positions in the schemes.”

Also, in order to bring transparency while addressing the issue of conflict of interest wherein a fund manager is common across mutual fund schemes, the AMC should disclose on a monthly basis the returns provided by the fund manager for all schemes managed by him/her. The same applies for any scheme-related advertisement issued by the AMC.

In case, the difference between the returns provided by the schemes managed by the same fund manager if more than 10 per cent, then the trustee should be notified, as well a disclosure should be put up on the AMC web site.

The circular also clarified that the due diligence of distributors was the responsibility of the AMCs themselves and cannot be delegated to any agency. The AMCs, however, can take the assistance of an agency in carrying out the due diligence process.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2943088.ece?homepage=true&ref=wl_home

Majority of actively-managed MFs underperform: S&P

The majority of actively-managed Indian equity mutual funds have underperformed their respective benchmark indices over the last five years, according to the latest Standard & Poor's Index Versus Active Funds (SPIVA) scorecard.

However, it said, funds have outperformed the indices over the latest 12 months ending December 2011.

The scorecard reveals that 53% of large cap equity funds failed to beat the S&P CNX Nifty, the leading benchmark index for large cap companies listed on the NSE, over the five years ending December 2011, it said.

Taking 2011 in isolation, however, active managers fared better, with 65% large cap equity funds producing higher returns than the S&P CNX Nifty, it said.

A similar pattern was seen for diversified equity funds, which offer a wider choice of stocks than large caps and therefore a greater chance of generating excess returns. About 58% underperformed their benchmark, the S&P CNX 500, over the past five years, it said.

In 2011 alone, however, 54% of diversified equity funds beat the index.

Active managers of Equity Linked Saving Schemes (ELSS) and balanced funds (equity oriented hybrid funds) have also fallen behind benchmarks over the past five years.

In contrast, it said, the majority of active managers of Monthly Income Plans or MIPs (debt oriented hybrid funds), gilt and debt funds (which invest mainly in corporate debt) have outperformed their benchmarks over a five year period.

In 2011, it said, majority of balanced and MIP funds underperformed, while majority of ELSS, gilt and debt funds beat their benchmarks.

The Indian mutual fund industry is going through a consolidation phase, it said, adding, none of the categories had a 100% survivorship over the past five years indicating mergers across categories.

Among funds, diversified equity funds had the lowest survivorship in the one and five-year periods, while balanced funds had the lowest survivorship in the three year period, it added.

Source: http://business-standard.com/india/news/majorityactively-managed-mfs-underperform-sp/159210/on