The Hindu Business Line : SEBI for review of MFs’ organisational structure

Kolkata, Aug. 10 SEBI has underlined the need for reviewing the current three-tier structure for mutual funds, made up as it is by the sponsor, the trustee and the asset management company. The proposal draws strength from some of the practices that have come about in recent times.

The securities regulator, which has particularly stressed on the independence of the trustees, is of the view that the present structure may not be quite appropriate, given the circumstances that the funds industry and its investors are passing through at the moment.

SEBI, observed Dr T.C. Nair, Whole-Time Member, has often felt that trustees are losing their relevance. “… There seems to be something wrong somewhere, although it looks very good from a distance”, he noted. He was addressing a meeting organised by Indian Chamber of Commerce on Friday.

SEBI has also pointed to the rapid growth of funds and their capacity to handle risks arising out of dynamic market conditions. While there are no problems at the moment, fund houses should prepare themselves for handling greater risks as and when these arise, it is felt.

“With the increase in the number of products, it is getting difficult for SEBI to inspect (each player). The industry should develop an information system, a database that will provide exact details”, Dr Nair observed.

SEBI has further underscored the need for using international accounting standards – considering the recent global products that have been mooted by some players. Additionally, it has pointed out that the industry should nurture more fund managers, a requirement that has gained significance because of frequent poaching of personnel.

Strong words

The regulator has also debunked some of the popular notions about increasing levels of awareness. In his strongly-worded speech, Dr Nair noted the following points:

* The phenomenon of investing in MFs is urban-oriented – just 8 cities command a huge proportion of the total transactions.

* While data on the number of folios are available, there is no concrete view on the total number of investors.

* About 42 per cent of the assets is on account of retail investors. However, of this, a large part is because of HNIs. Banks, financial institutions and corporates are the most significant contributors.

‘Lazy marketing’

Excessive urban-centricity has prompted SEBI to refer to what Dr Nair said is “lazy marketing”. “Are you making metro funds? Is this convenience marketing”, he asked the audience pointedly, adding that the industry needs to go to spread out in order to ensure greater inclusion.

Fund houses should provide alternatives to those who take to fixed deposits with banks and post offices in a big way. This will enable them to consider funds for their social security requirement.

Funds may also consider having their own distribution ventures – so as to avoid some of the issues arising from the current system of distribution. This, it is hoped, will lead to sound practices.

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