Securities and Exchange Board of India (Sebi) chairman UK Sinha on Thursday expressed displeasure over fund houses violating the 20-25 rule and cautioned the industry against the practice.
Speaking on the sidelines of the 10th CII Mutual Fund Summit, Sinha said Sebi had sent advisories to these fund houses and the regulator could take more concrete action if the AMCs did not heed the regulator’s warning. An instance had come to light, he said, when a single investor had 98% concentration in a scheme. As per Sebi rules, every MF scheme is supposed to have at least 20 investors and no single investor is supposed to invest above 25% of the scheme’s corpus. The aim is to make sure no single investor holds a large chunk of a single scheme.
Sinha urged the industry to look into the quality of its investor education programmes. “Investor meets are being held with just 4-10 investors; some investor meets are being conducted with distributors instead of investors,” he said. The Sebi chairman said it was time the MF industry took initiatives to brand mutual funds as an asset class: “The industry has a lot of catching up to do. It needs to think about where mutual funds fit in the hierarchy of financial investments.” He further added that the MF industry had a long way to go in improving its online penetration, observing that the industry’s online transactions formed merely 5% of the overall MF transactions, while online broking or internet trades had reached a 10% penetration.
Sinha expressed optimism that despite the ongoing litigation, an SRO for the MF industry would be in place soon. He also urged the fund industry to be aware of changes happening in the asset fund management industry overseas. For instance, some developed countries now required AMCs to disclose the remuneration structure of their fund managers, including variable pay.
Sinha said that the regulator’s thrust to improve penetration in B15 cities had started showing results, with the overall MF penetration in these cities up 1% to 13.68% from 12.68% last year.