SEBI wants mutual funds to evolve a common policy for ensuring arm’s length relationship with rating agencies
Mumbai: SEBI has asked mutual funds to maintain an arm’s length relationship with rating agencies. The regulator has also expressed concerns at rating agencies giving awards to schemes.
Mutual funds should evolve a common policy for maintaining arm’s length relationship with rating agencies, K N Vaidyanathan, Executive Director, SEBI, said in response to a question by Ashu Suyash, Managing Director of Fidelity Mutual Fund, at a seminar in Mumbai on Friday.
He further said mutual funds should have “sharper” definition of schemes based on their investment strategies and cautioned fund houses against indulging in performance window dressing.
“Let us assume, one fund delivers a 17 per cent return with consistent churning and another similar fund has delivered identical returns by a buy-hold strategy. Can this performance be conveyed to the investor?” Vaidyanathan asked.
He said 40-50 per cent of mutual fund schemes have customised benchmarks. He suggested that mutual funds adopt widely followed benchmarks like Sensex or Nifty as the first benchmark and a second one that’s relevant to the scheme objective. “If we have a consistent comparison to Sensex or Nifty, it would make sense to the investors,” said Vaidyanathan.
About eight fund houses have started using Sensex or Nifty as their primary benchmarks.
On a question by Cafemutual on SEBI’s plans to regulate mutual fund distributors, Vaidyanathan said, “Over time all stakeholders in the market will be regulated by SEBI”.
