When Franklin Templeton’s India unit wanted to launch a mutual fund that would switch allocation among stocks, bonds, gold and money markets, the Indian regulator baulked, deeming it too risky for domestic investors, according to the company.
The Securities and Exchange Board of India, or Sebi, is wielding an unprecedented level of control over how mutual funds operate, delaying new launches and dictating investment strategy, frustrated insiders in the embattled industry say.
Sebi’s tighter scrutiny adds to the challenges for the two-decade old Indian mutual fund industry that has endured a stream of redemptions from equity funds in recent years.
Even as Indian stocks hit record highs, most of India's 47 asset management firms are unprofitable and have underperformed the broader index so far this year.
“Sebi is trying to tell us what to do from an investment perspective, which we don't necessarily agree with,” said Vivek Kudva, who heads India, Central Europe, the Middle East and Africa for the Franklin Templeton Investments unit of US-based Franklin Resources.
After months of back and forth with the regulator early this year, the proposed fund was eventually shelved.
"If they don't approve it, we are stuck," Kudva said.
Equity fund assets under management have fallen from a peak of $30.8 billion in December 2007 to $24 billion last month, after net outflows in four of the last five years.
Sebi's hands-on approach under its chairman, UK Sinha, marks a break from past practice at the agency.