In first-ever long-term policy for the Rs 9 lakh crore MF industry, Sebi chairman U K Sinha - who was himself associated with this business earlier - has announced strong measures to weed out non-serious players and safeguard investors' interest while promoting growth of this crisis-hit segment of the capital market.
Nearly 45 fund houses in India together manage assets worth over Rs 9,00,000 crore, but fund mobilisation has been a tough task for them for past few years.
Proposing various tax benefits and other non-tax measures to boost the sector, Sebi has now sought to make mutual funds much more appealing as a long-term investment product. At the same time, it has raised the bar to ensure transparency, performance and service delivery.
"When the regulator gives a clear roadmap that addresses almost all issues, it helps us position ourselves for the long-term. The tax breaks and Mutual Fund Linked Retirement Plan will definitely help us draw more retail investors. That will be good for capital markets," said Sundeep Sikka, CEO of leading fund house Reliance Mutual Fund and chairman of industry body AMFI (Association of Mutual Funds in India).
Welcoming Sebi's move to ask fund houses to contribute their own money in form of 'seed capital' amounting to 1 per cent of the amount raised, Motilal Oswal AMC chief Aashish P Somaiyaa said, "This will act as a deterrent for those who are launching too many funds. Also, core competencies matter. While the amount of one per cent may appear small, it's a good start."
However, some other players are unhappy with Sebi measures, including a hike in the minimum networth from Rs 10 crore to Rs 50 crore. Nearly 20 fund houses would need to push up their networth and they would get three years to comply with these new rules.
"Does Rs 10 crore mean you are less serious about managing assets of the public and Rs 50 crore means you are dead serious? This amount is big for smaller players. Additionally, by making this Rs 50 crore, newer players, who could be better and more innovative, are being in a way stopped from entering the business," Quantum AMC CEO Jimmy Patel said.
Sebi's direction to mutual funds to disclose voting data along with rationale supporting their decision in investee firms on a quarterly basis has also evoked mixed reactions.
"While it tells those doing active fund management to be more responsible, for people running index based schemes it's not a great thing. Whatever we do or say in the voting right meetings matters little if indexes continue to include those stocks," said the chief of a foreign fund house.
Through its policy, Sebi has asked the government to facilitate channelising of pension money into mutual fund space, while state-run companies would be encouraged to park their surplus funds with various MFs.
"These are extremely positive steps that would help attract long-term and stable pension inflows which are critical for the economy as well as the MF industry," said Vijai Mantri, MD & CEO, Pramerica Mutual Fund.
However, some financial advisors feel that just larger tax breaks may not be of much help.
"Sebi wants the government to enhance the limit under Section 80-C of the IT Act from Rs 1 lakh to Rs 2 lakh to help make various MF schemes eligible for tax benefits. Currently, this section allows for deduction of Rs 1 lakh from taxable income. We already have tax-saving mutual funds. It can get you short term flows but on the long term performance and servicing is what matters," said Anil Rego, CEO of financial advisory firm Right Horizons.
There are about 45 fund houses present in the country with total assets worth over Rs 9 lakh crore, but fund mobilisation has been tough in the past couple of years.