MFs in a tizzy as Dec 31 deadline on single investor norm nears

Mumbai, Dec 23 | Updated: Dec 24 2004, 06:37am hrs
There is confusion galore in the mutual fund industry about the Securities and Exchange Board of India (Sebi) deadline of December 31 for complying with the norms for a minimum number of investors in each scheme of Indian mutual funds (MFs). There is also no clarity on whether this diktat should be applicable to the schemes alone or every plan within the schemes. A delegation of MFs is now expected to meet Sebi officials on Friday to seek clarity on whether the norm is applicable to schemes or individual plans as well.

The confusion follows the market regulators directive to MFs last year to ensure that no single investor has more than 25% share of the assets of the AMC. Sebi had also set a floor for the minimum numbers of investors per scheme at 20. This directive came to be known as the 20-25 norm in the MF industry. While the new funds had to comply with the diktat immediately, the existing ones had been given time till December 31, 2004 to comply with it.

It is to be noted that each of the MF schemes have at least 7-8 plans under their umbrella. If every plan were to comply with the 20-25 norm, the MF industry would effectively face a loss of nearly Rs 30,000 crore from its asset under management (AUM) by December 31, industry sources informed. This is so since they would then have to shut down these plans because they dont comply with the Sebi norm.

Top officials of the industry had met Sebi officials last week to discuss these issues and requested Sebi to extend the deadline.

Following the meeting, Sebi had asked MFs to furnish all details of the single investor schemes.

Meanwhile, fund mangers claim that they have already given the details of such schemes and the procedures that have been followed to comply with the aforesaid norms.

However, Sebi officials insist that there will be re-consideration of deadline only when there is satisfactory response from the fund houses. Speaking to FE, a Sebi official said: We will have to look at what the MFs have done so far to ensure that none of the investors have more than 25% of the assets. We will reconsider the deadline if we are convinced that there has been ample effort on their part.

However, as per data available with Valueresearchonline, a website dedicated to MFs, till September-end 2004, 91 funds were still to comply with the diktat. While four of them continue to be one-man shows, 47 had one or two investors in command of more than 50% assets of the scheme. However the latest status as per details of the number of single investor schemes could not be obtained, though industry sources say that there has not been too much of difference in the last two months.

A top industry official told FE: We had furnished all details of single investor schemes to Sebi on December 20, 2004. A delegation comprising brass of the fund industry is likely to meet Sebi officials on Friday to seek clarification on whether the diktat is limited only to the scheme level or it covers every individual plan of the MF schemes.