Reserve Bank green signal Stanchart IDR
Standard Chartered Bank (Stanchart) of the UK is in line to become the first issuer of Indian Depository Receipts (IDRs) after it obtained a green signal for its fund raising from the Reserve Bank of India (RBI).
 
Stanchart will now file a prospectus with the Securities and Exchange Board of India (SEBI) and is on course to be the first foreign entity to be listed on Indian Stock Exchanges. Details of its fund raising plans are not known. However, reports have suggested that it may be seeking to raise Rs5000 crore from the Indian market.
 
Interestingly, this development has happened just after its talks to acquire the retail assets of ABN Amro Bank have reportedly collapsed over the valuation of assets. Stanchart’s listing on Indian exchanges will also be an important milestone because IDRs as a concept have not caught on for almost a decade after it was first proposed in 2000 and nearly six years after the rules for their issue were first framed. These rules have since been tweaked several times in 2009 and diluted until we are now on the verge of seeing the first IDR listing.
 
In June this year, SEBI permitted mutual funds to invest in IDRs; it also changed listing rules allowing them to follow corporate governance norms as applicable in their home country. In July it tweaked disclosure norms and more recently it introduced the concept of ‘anchor investor’ for IDRs as well; this means that qualified institutional buyers (QIB) can be allotted up to 30% of the issue reserved for the category, even prior to issue opening with a 30-day lock-in rule. It also reserved 30% of the issue for retail investors.
 

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Mutual Fund to be sold by broker-demat route

In a move that will change the mutual fund distribution game, the Securities and Exchange Board of India (SEBI) is likely to ensure that mutual funds are sold by stock brokers off their trading screens. The fund units will be lodged in the demat accounts of unitholders.
 
Currently, secondary market trading in stocks is compulsorily in dematerialized form, while mutual funds are sold through large nationwide distributors like banks and also small independent financial advisors. A top official in one of the largest Indian mutual funds told Moneylife that SEBI wants to encourage the fund industry to take the stock route (exchange-broker-demat) to resolve the problems of fund companies following SEBI's decision to ban entry loads that distributors used to get for pushing funds.
 
The entry load, which ran as high as 6%, used to come from the fund corpus itself. Ever since SEBI enacted this rule, new Fund Offerings (NFOs) are down to a trickle, despite the Sensex having climbed more than 120% since early March. The distributors, especially Independent Financial Advisors (IFAs), too have been left high and dry after the regulator abolished the load.
 
SEBI has been saying investors have to pay the distributors directly for the services they get and it is between them to negotiate what those services are how much to pay. SEBI’s latest thinking is likely to be welcomed by the fund companies which used to be powerless in front of large distributors like banks.
 
“Often distributors would recommend a fund to investors on which they earned a fatter commission, not the ones that are best-suited for the investors” says the Chief Investment Officer of the one of the top five fund houses.
 
“The balance of power was much too against us. SEBI’s move had rightly changed the balance of power. The distributor network remains important to us. But we would certainly welcome a move that allows us to reach 1500 towns at one go, through the broking network.” - [email protected]
 

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AMFI meet on entry load hits a dead end
The Securities and Exchange Board of India’s decision to scrap entry loads on mutual funds has not gone down well with the mutual fund companies but they seem to have no strategy now to combat it. In the general body meeting of the Association of Mutual Funds in India (AMFI) held yesterday, members were supposed to discuss the issue but it ended with no clear action plan. There was supposed to be a special committee to discuss it but that proposal was given up eventually.
 
The SEBI directive, scrapping the entry load on mutual fund schemes took effect on August 2009. The AMFI meeting which lasted for several hours, saw members agitated about the directive. One of the courses of action was to set up a committee to take up the issue with SEBI. However, by the end of the meeting, the members decided the committee would be a futile effort, given the strong SEBI stance on the issue. When contacted by Moneylife, A P Kurian, Chairman, AMFI, refused to comment on the proceedings of the meeting claiming them to be “internal.”
 
Moneylife had earlier reported on how mutual fund companies are facing a hard time, given the new SEBI directive. The entry load, which ran as high as 6%, was earlier charged to the fund investors, that is the fund corpus itself. Ever since SEBI enacted this rule, New Fund Offerings (NFOs) are down to a trickle, despite the Sensex continuing to climb. The distributors, especially Independent Financial Advisors (IFAs), too have been left high and dry after the regulator abolished the load.
 
The mutual fund companies have kept the show going by paying out a 0.5% commission to advisors from their own fees; the larger distributors are being paid 1%. Some, like JM Financial Asset Management which have a poor long-term performance record, are even paying as much as 1.5% as upfront load plus 1% brokerage on systematic investment plan ( SIPs) and systematic transfer plan (STPs). Such a steep payout will affect the profitability as well as long-term survival of the asset management company (AMC). In the circumstances, the fund industry is even more focused on large corporate investments and has no interest in incurring the high cost of servicing retail investors. After the AMFI meeting, it seems that fund companies have completely fallen in line with the regulations. It remains to be seen what the smaller fund companies do.
– By Amritha Pillay ([email protected])
 

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