50% of the schemes trail benchmarks

SEBI will ask fund houses whose schemes underperform their benchmarks to initiate remedial measures.

For the credibility of all stakeholders of the mutual fund industry, it is important that these matters are discussed and remedial measures are taken.

“We are going to engage the fund managers and also the CEOs about what measures they propose to take,” said Mr U.K. Sinha, Chairman, SEBI.

He was addressing the CII Mutual Fund Summit here on Thursday.

There are nine fund houses where over a period of three years, 50-100 per cent of their schemes have performed less than the scheme benchmark.

There are further nine AMCs where up to 50 per cent of their schemes are less than their benchmarks.

The regulator observed that investors had the option to move out of an underperforming scheme but sustained underperformance made it an issue that had to be addressed by SEBI.

“We have cases where the schemes have under-performed their benchmark since inception. Though SEBI encouraged merger of schemes, it was only an option, not a solution for under-performance,” said Mr Sinha.

Inspection of certain fund houses revealed that rules were not followed, he said.

Mr Sinha cited repeated cases of scheme AUM being deployed as a fixed deposit in a bank which was already a unit holder in the same scheme.

He also observed that scheme concentration limit of 25 per cent for a single investor was being flouted. Some fund houses were also using inter-scheme transfers as a tool to transfer losses from one scheme to another.

It had also communicated its intentions of permitting flexibility in total expense ratio, single cheque payment for investments and advisory services, need for multiple share class; using stock exchange mechanism and broker networks to enhance distribution; transaction charges regarding opt-in and opt-out.

It had pointed out the need to improve the industry’s cost structure efficiency and for active investor participation in infrastructure debt funds and increase in qualified foreign investors.

SEBI, he said, was willing to provide capital support for setting up a self regulatory organisation to regulate distributors as also other regulators.

“I think this is the time for us to consolidate, to improve our systems and procedures and also to reach out to investors and tell them about the industry,” he said.

(This article was published on June 21, 2012)
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