Mumbai: Market regulator SEBI wants to raise the minimum target amount (MTA) which fund houses collect during NFOs in equity and debt schemes to prevent AMCs from launching ‘casual funds’, reports Economic Times.
Equity schemes are required to collect a minimum of one crore rupees during NFO. The current SEBI rule also stipulates that equity funds should have a minimum of 20 investors and no single investor shall account for more than 25% of the scheme corpus.
Sandeep Dasgupta, CEO of Bharti Axa Mutual Fund feels that although fund size should not be a matter of concern, the minimum criteria suggested by SEBI for equity funds can be collected easily.
“I feel that an equity portfolio can be created with very liquid stocks for a relatively small amount. I don’t think that Rs. 10 crore is a very large amount. If somebody is very confident of launching a fund keeping investor interest in mind then Rs. 10 crore MTA should be alright. AMCs have to bear some fixed costs in running their schemes. If you don’t even raise Rs. 10 crore, then it is not advisable to even go ahead with the launch,” says Sandeep.
Debt funds don’t find it difficult to raise Rs. 20 crore as they are mainly subscribed by corporates and institutions.
“On the debt side, no corporate issues papers less than Rs. 5 crore. You need Rs. 20 crore to deploy the money effectively. It will be useful from the fund management perspective. The Rs. 20 crore MTA for debt schemes has already been implemented,” says Sunil Subramaniam, Director – Sales & Marketing, Sundaram Mutual Fund.
Ajit Dayal, Chairman of Quantum Mutual Fund feels that SEBI should penalize fund houses which have been launching schemes unthinkingly.
“The license we get from SEBI is to manage money and not to gather money. The focus of the fund manager should be to fulfill the objectives laid out in the scheme irrespective of whether the fund has one lakh or ten crore of assets. If SEBI finds that fund houses are unnecessarily launching schemes it should take away their license. I think the SEBI objective is fantastic but the method is wrong because it could encourage the distribution channel to shove unnecessary products down the throat of investors to achieve the MTA,” says Ajit Dayal.
Ajit says that schemes should be able to build a track record of performance over time even if they collect tiny amounts from NFOs. “Mutual funds should be launched even with one lakh rupees and they should build a track record over time and then investors should invest in them. Having a MTA for a fund is wrong because it will encourage mis-selling,” adds Ajit.
Fund managers often manage multiple schemes. This may lead them to not giving adequate attention to schemes having small asset size.
“There are many products having small AUM which should get merged. Small funds sometimes do not get full attention from their respective fund managers. Fund houses will evaluate the funds before they launch,” says Ajit Menon, Executive Vice President & Head of Sales, DSP BlackRock AMC.
If implemented, the rule could pose a challenge to the newer, smaller AMCs which do not have a group or associate distribution arm.
