The Hindu Business Line : SEBI moves to protect small investors in MFs

CORPORATE and institutional investors would no longer be able to take advantage of the absence of strict cut-off timing of net asset value of mutual funds. To plug this discriminatory practice, the Securities and Exchange Board of India (SEBI) would soon be issuing its guideline on uniform cut-off time for mutual funds, according to Mr G.N. Bajpai, Chairman, SEBI.

The guideline aims to protect the small investors' interest and SEBI has been deliberating over the draft recommendations of the Association of Mutual Funds in India (AMFI) for nearly two months now.

According to the current system, asset management companies (AMCs) have different cut-off times applicable to different funds and these are specified in the offer documents of the respective schemes. The domestic mutual fund industry is in a race for assets under management and the large inflow of corporate money is a lure for AMCs to flout this timing.

For example, if an institutional investor has a view that the markets are likely to fall the following day, he could arm twist the AMC into exiting at the previous day's net asset value (NAV) at 4:30 p.m., even though the offer document of the scheme says that the current day's NAV is applicable after 3:30 p.m.

Advanced time stamping is a practice that is used to discriminate between large and small investors. At present, a handful of application forms are time stamped in advance and these are used to redeem, post the cut-off time. The unused forms are subsequently discarded. The guideline recommends a 16-digit code indicating the date, time and serial number. In this system, gaps in the serial numbers if any, would indicate that forms have been destroyed.

AMCs are not pleased with some of the recommendations that AMFI had suggested. Industry insiders reveal that though AMFI had taken into consideration the entire industry's view on the draft recommendations, small and mid-sized fund houses are not happy with some of the clauses. There have subsequently been discussions between SEBI and representatives of fund houses to reach a consensus.

"The guideline is expected soon. AMFI has taken all the players' view while discussing the recommendations," said Mr A.P. Kurien, Chairman, AMFI.

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