SEBI inspection carried out between April 01, 2014 and March 31, 2016 reveals that many fund houses did not ensure compliance with the mutual fund regulations.
In fact, SEBI has found many irregularities in practices of fund houses. However, most of these violations are operational in nature.
In a letter sent to AMFI, SEBI has pointed out these irregularities.
- Fund houses declared dividend and fix record date without taking approval of their trustees
- AMCs had paid trail commissions to distributors on assets with incomplete KYC
- Fund houses delay crediting of expenses charged in lieu of exit loads
- Delay in uploading NAV of schemes on AMC website
- Unfair valuation of unlisted equity shares
- Instead of putting email id of investors, fund houses have put invalid email IDs of AMC and R&T agents
- Using previous day NAV if an investor opts for redemption from Gold ETFs in cash mode
- Not remaining true to label
- Close end schemes investing in papers having maturities beyond the maturity of the scheme
- AMCs have categorized investors of T15 cities as b15 cities to charge additional TER
- Charging inappropriate expenses from investors in TER, one such example being charging for Investor Education Awareness (IEA) expenses
- AMCs did not apportion advertisement expenses properly to all schemes
- Borrowing of funds other than those allowed under MF regulations
- Transfer of investments from one scheme to another due to error in execution
- Trustees not carrying out periodic review of the performance of schemes
- Not updating trustees on transactions of fund houses with associates
- Indirectly charging investment and advisory fee on short-term deposits, which is not allowed.
- Not having a system in place to prevent investment from SEBI debarred entities
SEBI has asked fund houses to take corrective measures to ensure compliance with the SEBI MF regulations. SEBI further said, “SEBI takes a view in different matters based on the nature of violations, quality of evidence, loss to investors, repetition of violations and other mitigating factors. Also, any repetition of the violations or non-compliance with the provisions of MF regulations and circulars would be viewed seriously.”