The Hindu Business Line : Fund houses rush to meet investor base deadline

WITH barely three weeks left for the deadline, fund houses are scrambling to fulfil SEBI's requirement of a minimum of 20 investors in all their funds.

The Securities and Exchange Board of India, through a notification issued in December 2003, had mandated that all existing funds managed by asset management companies must have at least 20 investors and that no investor can invest in more than 25 per cent of the corpus of the fund. This regulation comes into effect from December 31, 2004.

While most fund houses have instructed distributors and channel partners to `aggressively' sell the products that fall short of the mark, others have decided to wind up some of these funds.

Meanwhile, the mutual fund industry is lobbying with SEBI to do away with both the requirements or extend the deadline.

"There is a lot of pressure now to find customers for some of these funds in order to keep them alive. There are funds that have as few as two investors. We now have to find 18 more to comply with the regulation. Some asset management companies (AMCs) are effecting changes in the offer documents of these funds to bring down the minimum application amount, so that we can get some investors in," said the head of a corporate third party distribution company.

Other AMCs are sending notices of fund closure to their investors. For instance, Franklin Templeton has informed investors of Franklin India Maxima Fund about a meeting of unit holders on December 15 to "take steps for the winding-up of the scheme."

There is ambiguity on whether the SEBI notice implies that the smallest sub-classification of each fund (growth, dividend) would have to comply with the requirement or if it would be at the plan level (institutional, retail).

The biggest defaulters are in the fixed maturity plan category, according to industry sources. A lot of institutional plans will also come under the radar.

"We are looking at our funds fairly regularly in order to ensure compliance with this criteria. So far, we do not see a need to close down any fund. If a fund falls short, we would give ourselves 30 days to build up the numbers or else shut it down," said Mr Raj Raman, Senior Vice-President - Sales and Marketing, Prudential ICICI AMC.

Distributors say that over 50 funds might be closed down for failure to comply with this regulation.

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