SEBI is likely to come out with a new regulation in which it will tighten disclosure norms for fund houses and intermediaries to make it more transparent.
Ananta Barua, Executive Director, SEBI said that the market regulator will soon come out with measures to further strengthen investors’ confidence in mutual fund sector. He was speaking at 14th Assocham Mutual Fund Summit held recently in Delhi.
Barua said, “Recently we have been discussing with industry and investor associations on how to increase more transparency so that industry becomes much more robust and we will come out with many more things which will further strengthen the structures where investors will have more confidence.“
“As a regulator, things by which we want to increase accountability of AMCs (asset management companies) and also enhance the confidence of retail investors is through transparency and disclosures,” added Barua.
Sources privy to the development said that SEBI is likely to come out with guidelines for fund houses to tighten due diligence process of distributors and disclose commission payout to all distributors.
SEBI rules mandate fund houses to disclose commission payouts of top distributors on yearly basis on their respective websites. Currently, AMCs have to do due diligence of distributors who have multiple point presence (more than 20 locations), AUM over Rs.100 crore across industry in the retail category, commission received of over Rs. 1 crore per annum across industry and commission received of over Rs.50 lakh from a single mutual fund. In case a distributor has an excessive portfolio turnover, i.e. more than two times the industry average, AMCs have to do additional due diligence of such distributors.
The senior official of a fund house said, “A few distributors have churned investor’s portfolios due to the high upfront commission in closed end equity funds. The market regulator may tighten disclosure norms to make due diligence of large distributors process more stringent.”
