Speaking at the 10th CII Mutual Fund Summit yesterday, U K Sinha, chairman of the Securities and Exchange Board of India, or SEBI, expressed his dissatisfaction at a few issues.
A few mutual funds were found to violate the 20-25 rule. This norm indicates that there must be a minimum of 20 investors in every mutual fund scheme with no single investor holding over 25% of the total assets of the scheme. He brought it to everyone’s notice that the regulator has noticed a violation of the 25% cap in a couple of instances.
SEBI had also mandated that asset management companies, or AMCs, annually set apart at least 2 basis points (0.02%) on daily net assets of the scheme towards investor education and awareness initiatives undertaken. He requested CEOs and trustees to look into the quality of investor education and the manner in which it was conducted. He remarked that at one instance, under the guise of investor education, a programme was held for the AMC’s distributors. He also stated that in several cases, the total number of participants in investor awareness outreaches was only between 4 and 10 individuals.
- Investments in bank deposits
Another area of concern was the investments made by mutual funds in short-term bank deposits. Sinha emphasised that they should only be used at a temporary deployment of funds and not as an investment route. He rightly pointed out that an investor does not go to a mutual fund to park his money in a bank fixed deposit.
- Minimum corpus for debt funds
Earlier this month SEBI came out with a ruling that AMCs should have a minimum subscription of Rs 20 crore for debt schemes during new fund offers. They will also have to maintain an average AUM (asset under management) of the same amount on a half-yearly rolling basis. This is to ensure an adequate corpus to make the scheme viable. Existing open-ended, debt-oriented schemes have to comply with the average AUM stipulation within one year from the date of issue of the circular. Singh stated that he hoped AMCs would take this in the right spirit and not wait for the 12-month deadline to comply with this norm but make it effective as soon as possible.
Sinha also urged the Indian mutual fund industry to improve branding of mutual funds as an asset class and urged it to harness the latest technology. He noted that internet-based trading on the exchanges in the secondary market is about 10% but just 5% for the mutual fund industry.
But it was not all brickbats. Sinha was happy with the way the industry handled the debt crisis last year. And noted that sectoral concentration in debt schemes too has dipped. He was also pleased to note that over the past year, money raised beyond the top 15 cities moved up 1% to touch 13.68%.
