Sebi to issue circular on MF scheme mergers soon
POLICY REVIEW Regulator also mulls new format for compensating distributors
MUMBAI: The Securities and Exchange Board of India will issue the circular for merging mutual fund schemes in a week’s time, said a top official.
The capital markets regulator is also working on streamlining the format for compensating distributors, he added.
“The circular (mandating mutual fund mergers) will be released in a week,” said G. Mahalingam, Sebi whole-time member, at Mutual Funds Conclave on Thursday.
The regulator is looking to help investors cut through the clutter of 2,000 i nvestment schemes and aid decision-makingafter this was suggested by its mutual fund advisory panel.
had reported on September 11 that the move will bring down the current schemes by as much as half as the regulator ensures that a fund house has only one product offering in each category.
India currently has 42 fund houses managing around ₹20.6 lakh crore.
Sebi is also discussing whether to move to a completely advisory-based model for mutual fund distribution, according to Mahalingam.
Currently, intermediaries can register either as an advisor (who gets a fee from the customer) or a distributor (who gets a commission from the fund house). However, distributors are also allowed to give inciden- tal advice. In the last two years, Sebi has released discussion papers questioning whether distributors can be allowed to give advice.
The mutual fund industry also needs to work on reducing the expense ratio, said Mahalingam.
Expense ratio is the percentage of assets spent to run a mutual fund. A lower expense ratio bodes well for investors. In 2012, Sebi had removed internal sub-limits and allowed fund houses more flexibility in deciding how they wanted to spend the money they received from investors towards the expense ratio.
“We need to bring down the expense ratio so that we are not edging ahead (higher) of other jurisdictions,” said Mahalingam.
Under existing norms, the maximum expense that an equity scheme can charge an investor is 2.5%. It is 2.25% for debt funds.
According to a 2016 report by investment research company Morningstar, the total expense ratio in most countries is between 1% and 1.7%, with India and Canada the most expensive at over 2%.
Mahalingam also said that Sebi is asking mutual funds to benchmark their schemes against the Total Return Index (TRI), an index that captures dividend income.
This, according to Mahalingam, will give distributors and investors a truer picture of the fund’s performance with respect to the benchmark.