The Hindu Business Line : AMFI mulls alternative term for `initial public offering'

STARTING next week, there won't be any more `initial public offerings' (IPOs) from mutual funds. Members of the Association of Mutual funds in India (AMFI) are putting their heads together to formulate a new term for `initial public offering' and are expected to announce it early next week.

The options being considered include `initial launch', `launch of scheme', and `initial opening'.

Mutual fund IPOs have witnessed rampant `mis-selling', with distributors positioning these as being similar to stock market IPOs.

Investors are not made aware that the fund would reopen for continued investments after the IPO and that the net asset value could be higher or lower than the IPO price.

After receiving several complaints regarding the same, SEBI asked the AMFI to change the moniker of fund launches.

"We appreciate the SEBI's concerns and feel that the names should be separated. Though the term `initial public offer' is valid to mutual funds, in the minds of investors the association of the term is with stock market IPOs," said Mr A.P. Kurien, Chairman, AMFI.

AMFI is discussing various possibilities for the name and expects to discuss the final option with SEBI early next week, he added.

There has been a large number of new fund launches by asset management companies in the last 6-8 months.

Distributors of these funds pitch them to prospective investors saying that investments during the IPO would be far more profitable than subsequent investments, said a senior AMC official.

They compare this to some stock market IPOs where the shares are listed at the exchange at a price far higher than the IPO.

A section of investors tend to sell the shares they get through IPO allocations immediately on listing and make some quick profits.

However, chances of quick profits on reopening of the mutual fund (after the close of the IPO) are very rare and the two cannot be compared.

Distributors have been taking advantage of this lacuna of information to mis-sell mutual fund IPOs, and SEBI expects the change of name to help curb the practice.

Though mutual fund players have no opposition to the change of name, some say that chances are it will continue to be called IPOs even though the name would be different in offer documents and other official papers.

"It is difficult to wipe the old term away and chances are that the trade will continue to refer to it as IPO. There is no harm trying, though," said the CEO of an AMC.

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