The capital market regulator announced some significant changes in the way MFs operate to facilitate what it calls a long-term policy for MFs in India
The Securities and Exchange Board of India (Sebi) on
Thursday announced some significant changes in the way mutual funds
(MFs) operate to facilitate what it calls a long-term policy for MFs in
India. The objective being to increase the understanding of this
category of investments among individual investors and also to extend
reach beyond the big cities. Moreover, Sebi has attempted to increase
the accountability of asset management companies (AMCs) towards
investors and towards performance of their schemes.
AMCs now need a higher net worth
The most debated change is the increase in net worth requirement for setting up of an AMC from Rs.10 crore to Rs.50 crore. According to data compiled by Outlook Asia Capital, there are 15 fund houses that have a net worth below Rs.50 crore and 29 with a net worth of Rs.50 crore or above.
While it is expected that the new law will be applicable
immediately for fund houses that would be launched here on, existing
firms may be given time to meet the new norm. “I expect Sebi to issue a
circular soon where it will explain modalities on how soon or otherwise
this net worth will be increased. For new firms, obviously, it will be
with immediate effect, but I hope that Sebi gives reasonable time for
existing firms (that don’t meet this criterion at the moment) reasonable
time to comply,” said Sandesh Kirkire, chief executive officer, Kotak Mahindra Asset Management Co. Ltd.
Long-term policy
In its statement, Sebi said that it wants to focus on the
long-term development of the mutual fund industry. To that end it has
introduced some changes in the functioning of fund houses.
Also, in an attempt to bring in more ownership towards
fund performance, Sebi has introduced the concept of seed capital at 1%
of amount raised by each scheme which has to be invested by AMCs in all
open-ended schemes. This is subject to a limit of Rs.50
lakh. According to the chief executive officer of an AMC who did not
want to be named, “It’s likely that existing schemes will also have to
align to this directive.” This is a good move to bring in accountability
at the management level for the performance of MF schemes.
The long-term policy also focuses on increasing the
disclosures made by AMCs on the ownership of funds, and on issues
related to corporate governance; these need to be disclosed in a
specified frequency on the websites of AMCs. Up till now AMCs were
required to disclose information about their participation in company
board meeting and exercising their voting rights once a year; Sebi has
now said that voting data along with the rationale supporting the
decision to vote for or against or to abstain needs to be disclosed on a
quarterly basis on MF websites. The frequency of these disclosures was
once a year.
According to a senior executive at a fund house who did
not want to be named, “It’s not necessary that board meetings happen
only once a year.” Since board meetings can take place more than once a
year, quarterly disclosures may give more information to investors. This
move, as Sebi puts it, may be an attempt to “encourage MFs to
diligently participate in corporate governance of investee companies”.
In another key change which may facilitate further
rationalization of the schemes in the industry, Sebi has proposed that
in case of consolidation of mutual fund schemes, capital gains should
not be applied and this should be treated as a transfer.
Tax incentives
Sebi has proposed that the limit of section 80 C of the Income-Tax Act may be enhanced from Rs.1 lakh to Rs.2
lakh for equity-linked savings schemes or your tax saving equity plan
and a long-term product which Sebi has called Mutual Fund Linked
Retirement Plan with an additional tax incentive of Rs.50,000 may be introduced. No indication on the implementation of this product has come in the press release.
Financial inclusion
Towards financial inclusion, Sebi has said that the
Employees’ Provident Fund Organization (EPFO) should be allowed to
invest up to 15% of their corpus in equities and mutual funds. Members
who earn more than Rs.6,500 should be given the option that a part of their EPF contribution be invested in an MF scheme of their choice.
Moreover, Sebi has proposed introducing capital market
concepts and financial planning as core curriculum in schools and
colleges. Lastly, other than awareness programmes, MFs will need to have
printed literature in regional languages as well. Once again how this
will be implemented, whether state-wise or collectively, is not known
yet.
Source- Livemint.com
By
Shah Mohammad Abdul Qadir
PGDM 1st year
IIMT College of Management
Greater Noida, U.P.
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