SEBI opines that a single SRO for the mutual fund distributors would help remove complexity and duplication and also lower the costs while it would also help in a better oversight by the various regulatory authorities
The mutual fund industry is set for a slew of regulatory changes, including setting up of a single SRO (Self Regulatory Organisation) for all distributors, which would also be allowed to access the stock exchange platforms.
Besides, fund houses may also be allowed to conduct proprietary trades on the debt segments of stock exchanges, while separate changes are also in works to further strengthen the newly launched independent debt platforms of the bourses.
The proposed measures are expected to be discussed by the Securities and Exchange Board of India (SEBI) at its board meeting on Tuesday, sources said.
SEBI is of the view that a single SRO for the mutual fund distributors would help remove complexity and duplication and also lower the costs while it would also help in a better oversight by the various regulatory authorities.
Some entities have already evinced interest in setting up SROs for distributors of mutual fund products and a single applicant would be selected from amongst them by SEBI after getting formal applications from them.
SEBI may soon finalise the deadline for accepting such applications and the same would be communicated to the interested parties, sources said.
Regarding the separate debt segment of stock exchanges, SEBI would also consider various steps for their growth and the proposals being considered include mutual funds being allowed to trade on them as “proprietary trading members”.
Besides, the mutual fund distributors may also get access to infrastructure at the stock exchanges by getting their memberships, a senior official said.
However, according to stock exchanges—BSE, NSE and MCX—the distributors are not keen to take membership due to the financial and compliance burden of being a member.
Keeping in mind these views, SEBI is likely to deliberate on alternatives such as admitting subsidiary floated by mutual funds as member with the stock exchange with distributors effectively being authorised persons of these subsidiaries.
These subsidiaries would be responsible towards the investors and for complying with the regulatory norms.
The regulator might also suggest distributors to take “limited purpose membership” of the stock exchanges that would involve lesser financial and compliance burden.
Under this category the distributors may be allowed to use the infrastructure at the bourses to deal in mutual funds but may not be permitted to handle payout and pay-in of funds on behalf of the investors.
For enabling mutual funds to directly trade on the debt platform, SEBI plans to permit an Asset Management Company (AMC) appointed by these fund houses to take the membership under the “proprietary trading members”.
Further, SEBI is likely to bring in some changes to the broker norms related to the debt segment such as a deposit of Rs10 lakh for the new clearing members and an annual fee of Rs50,000, among others.
Monthly income plans have failed to perform in the past. Is the new scheme from JP Morgan worth considering?
JPMorgan Mutual Fund plans to launch an open-ended monthly income scheme—JPMorgan India Monthly Income Fund. Such schemes are commonly known as Monthly Income Plans (MIPs) as they offer a regular stream of income every month in the form of dividends. A typical MIP invests almost 85% of its assets under management (AUMs) in debt and keeps a small equity exposure for the upside. The scheme from JPMorgan Mutual Fund would invest 75%-100% of its assets in debt instruments and the remaining portion of the portfolio would be invested in equity.
In an analysis conducted a few months back, we found that MIPs have delivered a lacklustre performance (Read: Monthly Income Plans: Are MIPs worth considering?). In a period when the Reserve Bank of India (RBI) had cut interest rates and when the Sensex went up by nearly 15%, MIPs delivered a below par performance. In a period where MIPs got a chance to prove their mettle, even large fund houses struggled.
Over a year or so back, we compared the performance of MIPs with bank fixed deposits (FDs) (Read: Bank fixed deposits Vs MIPs: Neither monthly, nor income). Even after adjusting for taxes, FDs have proved to be better than the average MIP, over some periods. But the returns on an FD are assured. There are a few MIPs that have done well, but many have been terrible performers.
MIPs are riskier than pure debt funds because of their equity component. While they offer the opportunity to earn higher returns than those from pure debt funds, these may be lower, if the equity component performs poorly, as MIPs usually invest in blue-chip stocks only. There are only a handful of MIPs which have understood what serious asset management is all about.
How has the fund management company performed in the past? JP Morgan currently manages two schemes—JPMorgan India Equity Fund and JPMorgan India Smaller Companies Fund. Both the schemes have performed better than their benchmarks taking a three-year period. Even though the schemes have aged more than five years, they have been able to accumulate a total corpus of just over Rs300 crore. The fund management does not have a long track record of consistent performance.
Here again the fund house has chosen four managers to look over the scheme. The equity portion of the scheme would be managed by Harshad Patwardhan and Amit Gadgil who have 19 year and 11 years of experience, respectively. The debt segment of the scheme would be managed by Namdev Chougule and Ravi Ratanpal, who have 11 years and nine years of experience, respectively. Whether having four fund managers would ensure benchmark beating returns would be left to be seen.
Other details of the scheme
Minimum Initial Application: Rs5,000 per application and in multiples of Re1 thereafter.
Additional Application: Rs1,000 per application and in multiples of Re1 thereafter.
Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i) and (6)(a) Up to 2.25%
Additional expenses under regulation 52(6A)(c) Up to 0.20%
Additional expenses for gross new inflows from specified cities# Up to 0.30%
Within and including 18 (eighteen) months from the date of allotment in respect of Purchases made other than through SIP—1%.
Following the surrender request from Parsvnath Infra, the Board of Approval, headed by Commerce Secretary SR Rao, has de-notified the zone at its meeting on 12th June
Faced with land acquisition problems, real estate major Parsvnath has surrendered its IT special economic zone (SEZ) in Haryana.
Following the surrender request from Parsvnath Infra, the Board of Approval, headed by Commerce Secretary SR Rao, has de-notified the zone at its meeting on 12th June.
“After deliberations, the Board decided to approve the proposal of Parsvnath Infra for de-notification of the sector-specific SEZ for IT/ITES at Sohna Road, Haryana.
“The approval is subject to the DC (Development Commissioner) furnishing a certificate that the developer has either not availed or has refunded all the tax/duty benefits availed under SEZ Act/Rules...” the minutes of the SEZ BoA meeting said.
The BoA is a 19-member inter-ministerial body that deals with SEZs and the issues related to them.
The board has also directed that the information regarding the case “must invariably be sent to CBDT and CBEC for taking necessary action”.
In its application, Parsvnath Infra had requested for de-notification of the zone on the grounds that “it has not been possible to acquire some small pockets within the notified area thereby affecting contiguity. And further extension of formal approval has been denied by the ministry of commerce”.
The IT/ITeS SEZ at Sohna Road, Gurgaon was notified on 23 August 2007 over an area of 42.4 hectares.
Earlier, a few other developers have also surrendered their SEZs due to the land acquisition problems.
Separately, the Board has also de-notified Biological E.Ltd’s SEZ for biotechnology proposed at Ranga Reddy District in Andhra Pradesh.