The Securities and Exchange Board of India (Sebi) appears to be of the firm belief that effective regulations for mutual funds can only evolve over a period of time. Which is why the merits and demerits of most of the amendments that it has now effected have been discussed at great length over the past two years. Though the new guidelines came into effect on January 12, it is still open to suggestions and criticisms. While such an approach is laudable since it allows for detailed interaction between the market regulator and the mutual funds that would finally be affected by the changes, it also causes unnecessary delays. As a result, the reforms arrive a little too late.Consider for instance, the restriction on investments by mutual funds in group companies of the sponsor and the prohibition of investments in unlisted or privately placed securities of group companies. Though such a restriction has been under consideration for long -- even before the CRB imbroglio, it is finally being implemented now. Hadthis come about a year ago, the CRB scam could have been averted. Nevertheless, the reforms though a little delayed will help in the strengthening of mutual fund governance and will boost public confidence in them. Increasing the number of independent trustees to two-thirds of the board should go a long way in ensuring this.
Besides, the standardised offer document and application form which would require detailed disclosures regarding past performance of all the previous schemes launched by the fund, asset allocation pattern for the proposed scheme and risk factors would ensure transparency. Making it mandatory to disclose the portfolio in full in annual reports will help investors in deciding whether or not they should stay invested in the scheme.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
