Despite finding the fund house contravening regulations, the market watchdog has let it off the hook with a mere warning, on technical grounds
Market regulator Securities and Exchange Board of India (SEBI) has let off HSBC Mutual Fund, HSBC Asset Management (India) Pvt Ltd (HSBC AMC) and its chief executive officer with a mere warning, despite finding them contravening regulations.
In an order, SEBI's full-time director Dr KM Abraham said, “I hereby warn the Board of Trustees of HSBC Mutual Fund, HSBC Asset Management (India) Pvt Ltd and its chief executive officer that they shall strictly comply with the law governing their conduct and business of mutual funds in the securities market.”
The matter relates to the HSBC Gilt Fund. It was alleged that in January 2009, HSBC AMC changed fundamental attributes of the scheme without following procedures. In a letter dated 3 March 2009, the AMC told the market regulator that it has made certain changes in the scheme. HSBC AMC said that it changed the name of the scheme to HSBC Guild Fund from HSBC Guild Fund-Short Term Plan, changed the benchmark index to 'I Sec Composite Index' from 'I Sec Si-Bex' and modified duration of the portfolio not exceeding 15 years from 'normally not exceeding 7 years'.
Following the changes, some investors complained to SEBI that their value of investments in the scheme had come down. They also alleged that the same was because of the abrupt changes in the investment objective such as shifting the investments from ultra short-term to long-term bonds of the scheme in January 2009.
There were some media reports which said that the Fund had shifted about 80% of its assets from ultra short-term to long-term bonds in a single day. The AMC cited liquidity crisis and the corresponding volatility of the assets under management, as the reasons for increasing the duration.
The AMC had launched a scheme called HSBC Gilt Fund during the year 2003. The scheme is an open-ended scheme, which sought to generate reasonable returns through investments in government securities (also referred to as G-Secs). The said scheme had two plans—Long Term Plan and the Short Term Plan. In the offer document, it was mentioned that the Short Term Plan was suitable for investors seeking to obtain returns from a plan investing in gilts (including treasury bills) across the yield curve with the average maturity of the portfolio normally not exceeding seven years and modified duration of the portfolio normally not exceeding five years. The Long Term Plan was intended to suit investors with surpluses for medium to long periods and that the plan would invest in gilts (including treasury bills) across the yield curve with the average maturity of the portfolio normally not exceeding 20 years and modified duration of the portfolio normally not exceeding 12 years.
However, the AMC wound up the Long Term Plan after failing to get the minimum 20 investors mandated by SEBI and continued the Short Term Plan. Subsequently, the said plan underwent certain changes, the major change being the change of the modified duration from 'normally not exceeding 5 years' to 'not exceeding 15 years'.
The counsel for the AMC argued that it was specifically mentioned in the offer document that the average maturity and the modified duration could undergo a change in case the market conditions warrant and according to the views of the concerned fund manager and contended that SEBI did not object to the same while scrutinising the offer document.
Dr Abraham in his order said: "The noticees may be technically correct in stating that the changes made by them are not fundamental attributes, as per the aforesaid SEBI Circular, and therefore there is no legal compulsion on them to adhere to the procedure and manner prescribed under Regulation 18 (15A) of the Mutual Funds Regulations. However, the vital point that the noticee seems to have sadly overlooked is the aforesaid Regulations clearly extend to all changes that affect the interests of unit-holders."
"I am of the view that the board of trustees of the Fund and the Fund have contravened the provisions of Regulations 18(9) & 18(22) of the Mutual Funds Regulations and Clauses 2, 6 and 9 of the Code of Conduct laid down in the Fifth Schedule of the Mutual Funds Regulations. Further, the AMC has contravened Regulations 25(1) & 25 (16) of the Mutual Funds Regulations and Clauses 2, 6 and 9 of the said Code of Conduct. The Chief Executive Officer of the AMC having failed to ensure that the mutual fund complies with all the relevant legal provisions has contravened Regulation 25 (6A) of the Mutual Funds Regulations," Dr Abraham said in an 18-page order.
The proposed move follows the finance ministry’s insistence that any hike in APM gas price should be in one stage and not in phases as previously suggested by the oil ministry
The government plans to more than double the price of natural gas produced by Oil and Natural Gas Corp (ONGC) to $4.20 per mmBtu, in a move that will help the State-run firm to break even in the gas business, reports PTI.
The oil ministry is likely to move a Cabinet note next month for raising price of the gas, produced by ONGC and Oil India Ltd from fields given to them on a nomination basis (called APM gas), to rates equivalent to that produced from Reliance Industries’ KG-D6 fields, official sources said.
This follows the finance ministry’s insistence that any hike in APM gas price should be in one stage and not in phases as was previously proposed by the oil ministry.
The oil ministry had earlier proposed raising APM gas price from $1.79 per million British thermal unit to $4.20 per mmBtu in phases over the next three years.
ONGC, in 2008-09, lost Rs4,745 crore in revenues on selling 17.71 billion cubic metres of gas at the government fixed rate and the move to jack up prices to $4.20 per mmBtu would help the firm break even, sources said.
The oil ministry had previously proposed an immediate 30% hike in the price of gas produced by ONGC and OIL to $2.3 per mmBtu and in three more stages to $4.2 per mmBtu.
Price of gas produced by ONGC and OIL from fields given to them on a nomination basis were last revised in 2005. Current rates of Rs3,200 per thousand cubic meters ($1.79 per million British thermal unit) are less than half of the $4.2 per mmBtu price of gas from the KG-D6 field of RIL.
The oil ministry had, a while ago, circulated a Cabinet note for hiking the price of gas under administered pricing mechanism (APM) to Rs4,142 per thousand cubic meters ($2.32 per mmBtu).
However, on the insistence of the finance ministry, it has withdrawn the Cabinet note and is likely to move a fresh one seeking to raise the price of the gas under APM to Rs7,500 per thousand cubic meters or $4.2 per mmBtu, sources said. The increase in rates would be in one stage, they said.
About 39% of the nation's 140 million standard cubic meters a day of gas output is sold at the administered rate.
A hike in rates is an attempt to reduce distortions in a market with more than a dozen prices.
The government has set $4.2 per mmBtu as the sale price of gas from Reliance Industries’ eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.
Sources said 54.32 mmscmd of gas produced by ONGC and OIL is sold at APM rates of $1.79 per mmBtu. RIL produces about 64 mmscmd of gas from KG-D6.
A strong overnight market in the US, a surge in Asia and a very positive opening in Europe could generate a lukewarm move in India. Time to go neutral
The market was volatile today, with trading limited in a narrow range. The Sensex ended the day at 17,745, higher by 51 points (0.29%), and the Nifty ended at 5,322, higher by 18 points (0.35%). The market started the day with a sharp gain, but it soon slid from there. It pared its gains in morning trading.
Japanese stocks led the rally in Asian equity markets on economic reports pointing to faster growth and after concerns over Greece’s debt crisis abated. Key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan rose by 0.53% to 2.3%. China’s Shanghai Composite fell 0.47%. US stocks rose to a 19-month high on Friday (23rd April) as concerns eased over the impact of healthcare reform. Sales of new US homes soared 27% in March 2010, climbing the most in 47 years. The Dow gained 70 points (0.6%), to 11,204.28. The S&P 500 rose 8.6 points (0.7%), to 1,217. The Nasdaq added 11 points (0.44%), to 2,530.
Closer home, the government said that the monsoon is likely to be normal this year. Rainfall is likely to be 98% of the long-term average, said the Indian Meteorological Department. Rainfall may go up due to the weakening of the El Nino phenomenon—which disrupts normal weather patterns—and the heat wave prevailing in northern India. The monsoon wind brings around 75%-90% of the total rain in most parts of India. The Reserve Bank of India (RBI) has expressed optimism over the ease of inflation on the event of a normal monsoon. The Indian Banks’ Association said that banks need not increase interest rates now as there was enough liquidity in the system.
Foreign institutional investors were net buyers on Friday of Rs339 crore. Domestic institutional investors bought stocks worth Rs29 crore. The rupee weakened against the greenback on month-end dollar buying by oil refineries. A new shift in the World Bank voting powers has increased China’s voting share. It is now in the third place behind the US and Japan in term of voting share. The US Federal Reserve is likely to keep interest rates near zero and it is also likely to repeat its promise of an extended period of very low rates at the conclusion of a two-day policy meeting on Wednesday, 28 April 2010. The US interest rate regime has been in a range of zero to 0.25% since December 2008.
Binani Cement (up 0.9%) has approved a share buyback at Rs90 a share for a 7.14% stake. EID Parry (down 0.4%) will acquire majority stale in GMR Industries. It is making an open offer for GMR Industries at Rs110.69 a share. Gujarat NRE Coking Coal, a subsidiary of Gujarat NRE Coke (up 7.3%) has entered into a contract worth $90 million with Joy Manufacturing Company. Divi’s Laboratories (up 1%) has received a letter of approval from the Visakhapatnam Special Economic Zone (SEZ), for setting up and development of a new manufacturing unit in the Zone for pharmaceutical ingredients. Marg, an infrastructure development company, has announced that its capital issue and allotment board has approved the issue of equity shares not exceeding Rs1.5 billion through qualified institutional investors. The QIP will be issued on 26 April 2010; it has fixed the minimum average floor price at Rs189.88. Vipul (up 9%) has fixed 5th May as the record date for a 2-to-1 stock spilt. Bank stocks rose on an expected increase in credit growth in the current year in a reviving economy.