Despite having an astonishing growth rate of 450 per cent in terms of assets under management (AUM), mutual fund houses have not made any significant efforts to share the benefits with investors, says G Mahalingam, Whole-Time Member, the Securities Exchange Board of India(SEBI).
Speaking at an event, ‘SEBI in the News: What’s the Insider’s take?’, organised by Chennai International Centre (CIC) on Friday, Mahalingam said that in the last five years, starting from March 2012 mutual fund assets under management have grown to ₹24 lakh crore from ₹5.87 lakh crore.
“Can we think about sharing the benefit of economies of scale with investors?” Mahalingam asked, adding that SEBI is looking at measures such as cutting expense rates to make investors benefit from this growth.
As mutual funds grew, their total expense ratios have also grown, giving them a comfortable before-tax profit margin of 45 per cent, Mahalingam said.
“Nowhere in the world, will the financial services sector offer these margins,” Mahalingam said.
Trading in derivatives
Highlighting the rapid growth of the derivative market, Mahalingam said the derivative market to cash market turnover has increased to 15.54 times currently from 1.5 times in 2004-05.
“Individuals, partnership firms, brokerages and Hindu undivided families (HUF) contribute about 36 per cent of derivative turnover,” Mahalingam said, adding that SEBI is concerned whether all these participants are even aware of the hidden risk behind any of these derivatives.
Mahalingam said that despite severe resistance from the industry, SEBI issued a circular mandating physical settlement on derivative trading, to ensure a safe market for anybody to trade and to ensure that all the participants are aware of the inherent risk involved in such trading.
Corporate governance
Mahalingam said SEBI as a regulator is concerned about some of corporate governance issues such as public disclosures, related-party transactions and appointment of independent directors.
“We are implementing some of the measures suggested by the Kotak Committee on corporate governance,” the SEBI board member said.