Sebi asks mutual funds to adopt high-deposit districts

Written by PTI | Mumbai | Updated: Jan 12 2014, 21:39pm hrs
SebiSebi has identified nearly 85 districts for possible adoption by fund houses, as these areas have high bank deposits but limited investment opportunities. Reuters
Hopeful of a major boost to mutual fund business, regulator Sebi has identified nearly 85 districts for possible adoption by fund houses, as these areas have high bank deposits but limited investment opportunities.

In all-out efforts to help the sector, Sebi has also made necessary provisions for all their "genuine" demands, while it has also suggested greater clarity on taxation framework for mutual fund retirement schemes to attract a large pool of pension money into the capital markets.

"We have no pending request from any (mutual fund) industry segment for the development of this market. Whatever request we had received, we have examined them and whatever we found to be genuine, we have allowed them to do," capital markets regulator Sebi Chairman U K Sinha said.

Fund houses have often complained about regulatory issues and operational difficulties in attracting investors, although their overall asset base grew by about 11 per cent to over Rs 8.8 lakh crore in 2013.

Asked about the steps being taken to help mutual fund industry, Sinha said, "What we have done is that in partnership with mutual fund industry body AMFI (Association of Mutual Funds in India), we have identified certain districts in the country where we have decided to focus more."

"The way these 85-86 districts have been identified is that these are the districts where bank deposits are very high and the penetration of capital market products is very low.

"This means that people have got surplus money there and they are using the banking system, but not using the capital market instruments," he added.

Sebi has shared the information about these districts with AMFI and the mutual funds have been asked to go and open branches in those areas.

The Sebi chairman further said that branches are being opened in these areas now and the regulator has also asked the mutual fund industry to adopt districts.

"Just as there used to be district adoption by banks, we have asked the mutual fund industry to adopt districts. So, various fund houses are adopting districts.

"This has just begun. These are the measures we are taking to let the people (from financial markets) reach the people (who can invest in good products," he said.

Listing out other measures undertaken by the Securities and Exchange Board of India (Sebi), which also regulates the country's mutual fund industry, Sinha said that fund houses had apprehension about the advertisement code being "very rule-bound and very difficult to comply".

"We have addressed that concern and now we have made it (the code) risk-based.

"The funds said they do not have any financial incentive for selling products, to which we said that if you go beyond top 15 cities, you will get extra incentives. We have provided for new sets of mutual fund distributors, whose training and certification is not very difficult," he added. The Sebi chief also listed out measures like product labelling and provision for up to Rs 20,000 being accepted in cash to make it easier for the fund houses.

"So, nothing is pending before us. The only thing that can be said is pending is having an SRO (Self Regulatory Organisation) for mutual fund distributors, but that exercise is also going on and it is being completed soon," Sinha said.

The Sebi chief also rejected the apprehensions that mutual funds were more focussed on institutional investors and not very concerned about retail investors.

"This is not a true picture. The institutional investors provide them only with AUM (Asset Under Management) and not the revenue. No company can survive merely by having a topline. So, they do focus on retail and equity products, but for a variety of reasons they have not succeeded in the last one or two years," he said.

Terming tax benefits necessary to attract pension money to the capital markets, Sinha also favoured a clarity on taxation policy to be applied to retirement-focused funds to tap this huge pool of capital.

The total size of pension market in India is estimated to have stood at over Rs 1.5 lakh crore in 2010, while it is expected to rise to over Rs 2 lakh crore by 2015 and further to close to Rs 3 lakh crore in 2020 and more than Rs 4 lakh crore by 2025.

This includes individual retirement money, provident fund and other small savings and is based on a study conducted by a government-appointed expert panel.

However, the share of this vast capital pool is almost negligible in the equity markets, although a lot of foreign pension funds including from the US and Canada regularly invest in Indian markets.

In the past, Sebi has asked asset management companies or mutual fund houses to launch pension products, so that retirement money can be brought into the capital market.