SEBI mulls 10% crossshareholding cap in MFs

To avoid a potential conflict of interest, market regulator SEBI is considering to put a 10% cross-shareholding cap in mutual funds, senior officials told the PTI on Wednesday. The new measure may have an impact on the shareholding pattern of UTI Asset Management Company (AMC). State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation (LIC) have their own mutual funds and at the same time they hold a 18.24 per cent stake each in UTI AMC. The issue will be taken up at a SEBI board meeting, scheduled for Thursday.

Under the proposal, any shareholder owning at least a 10% stake in an AMC will not be allowed to have a 10 % or more stake in another mutual fund house operating in the country. Further, a sponsor of a mutual fund, its associates, group company and its asset management company will be restricted from holding 10% or more stake in a rival AMC. In addition, such entities will be barred from having a representation on the Board of another MF house. The new norms are aimed at avoiding any conflict of interest and help in strengthening the governance structure for mutual funds. In addition, SEBI may come out with a new framework for the Investment Advisor in order to segregate advisory and the role of a distributor. However, MF distributors while distributing the investment product can explain the features of the product to customer. To prevent the conflict of interest that exists between 'advising' of investment products and 'selling' of investment products by the same entity/person, there should be clear segregation between these two activities, the officials said. Existing investment advisers offering distribution services via a separate division will be given an option to choose between providing investment advice and distribution service before March 31, 2019.