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Tuesday, May 03, 2011

Sebi panel to review 2009 MF changes

The Securities and Exchange Board of India (Sebi) has formed a seven-member panel chaired by Prashant Saran, whole-time member, to examine the mutual fund sector’s grievances on the abolition of entry loads in August 2009. It had its first meeting on Friday.

K N Vaidyanathan, executive director, who heads the MF department at Sebi, is conspicuous by his absence in the committee, raising the industry’s hopes of a policy change. Vaidyanathan has been one of the strongest ambassadors and a strict enforcer of the no-loads regime that came into force under then Sebi chief C B Bhave.

FELT SIGNAL

U K Sinha, who took over as Sebi chairman in February, was one of the loudest critics of the Sebi moves when chairman of UTI Asset management. There was widespread speculation in the MF industry that Sinha’s assuming the office of regulator would bring relief. The formation of this committee and exclusion of Vaidyanathan from it are seen as clear moves in that direction. The industry claims to be suffering from loss of distribution force and erosion of assets under management. 

According to two panel members, this committee has been formed with a specific mandate to look into post-August 2009 issues and should not be confused with the existing MF advisory committee.

Others on the panel are H N Sinor, chief executive of the Association of Mutual Funds in India; V Ganesh, CEO of Karvy Computershare Ltd; Dhirendra Kumar, CEO, Value Research; Narendra Mehta, investor grievances cell;, G Sethu of National Institute of Securities Markets, and S Ravindran, chief general manager-MF, Sebi.

Sinor refused to comment but has informed the fund houses of the new committee through an email. He said it would look into “sustainable and organised growth of the industry”. And, that it would discuss issues like transaction costs, single-cheque payment by customers, etc.
Amfi will take up issues with the committee from time to time, he said in the mail to fund houses.

A panel member said: “It’s very exploratory. A lot of people have complained about the transaction costs. This is making people disinterested and move out of the industry. So, the panel will look at ways to address these issues.” He said the findings are expected to come in a “few weeks.”

According to the him, the panel is clear that the advice and sales functions need to be kept separate. Another panel member termed it an effort to bring back entry loads through the back door.

OTHER ISSUES

Two key issues it would examine are the twin cheque system and the common account statements introduced by Sebi, with the associated transaction costs.

To distinguish the payment made to the distributor for his services, Sebi had mandated this be done separately. And, the regulator had pushed for a common account statement.

“We made our stand clear to Amfi that there should be a single cheque payment system. Even after two years of entry load ban, the distributors are finding it difficult to charge investors for the advice. We believe an investor should give a single cheque to the AMC and mention (overleaf) how much commissions he/she wants to pay to the distributors. A double cheque system only adds to the confusion,” said a CEO of a mid-sized fund house.
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