Sebi to decide on MF norms on August 16

The board of the capital market regulator is scheduled to meet on August 16 to decide on the new norms for reviving the mutual fund industry. It is believed that the Securities and Exchange Board of India (Sebi) will increase the expense ratio and allow fungibility in its usage.

Currently, the expense ratio is pegged at 2.25% per cent, within which the management fee is capped at 1% with the rest reserved for operating expenses. Mutual fund players want the expense ratio to be increased to at least 2.50% and doing away with the ceilings within the pool account. This, say fund managers, will allow asset management companies (AMCs) to incentivise the distributor community that has abandoned mutual fund products ever since commissions have dried up.

According to persons familiar with the development, the regulator is of the view that distributors need to be incentivised for selling mutual fund products but, at the same time, is against the return of entry loads. The regulator is also believed to be of the view that fund houses that show concrete action in increasing the penetration beyond the top cities should be given more leeway in using the expense ratio funds. Incidentally, this is in line with current chairman UK Sinha has oft-repeated stance that fund houses are not doing enough for increasing their reach beyond the tier 1 and tier II cities.

The recent past has seen a slew of meetings between finance ministry officials, mutual fund industry body, distributors, heads of some of the largest AMCs and Sebi representatives. Sebi?s mutual fund advisory committee also met last month and has submitted its proposals to the board.

A section of the industry wants the distributor fee to be linked with the investor return, but no suitable consensus on achieving this has been arrived in the recent meetings. Policy makers have also asked the Association of Mutual Funds in India (AMFI) to come up with tax proposals to make pension and long-term saving products more investor friendly.

The MF advisory committee is also believed to have suggested capping the exposure of debt schemes in any particular sector at 30%. Such schemes have the largest exposure to the NBFC sector, which has been under the scanner of various regulators.