Mutual funds will soon be asked to specify the money invested in their schemes by their parent bodies, corporates and retail investors. This is expected to bring an additional level of transparency to the mutual fund business in the country. Market regulator Securities & Exchange Board of India is readying guidelines to the effect.
Disclosing the sources of the assets under management (AUM) is, however, expected to be resisted by the industry, as funds now need to disclose only their total investments. The larger the fund house the more is the draw for the new investors to park their funds in it.
Since the government has advertised mutual funds as the right vehicles for small investors to enter the equity markets, it is keen that the race to top the AUM chart score should not be based on dubious figures. Incidentally, February figures show that total AUM for the industry has again crossed the Rs 5,00,000-crore mark. There has been a 8.68% rise or in absolute numbers a Rs 40,024.38-crore addition to investments through this route in February to Rs 5,00,973.37 crore.
According to officials familiar with the development, Sebi is, therefore, working on guidelines that would require fund houses to report separately the source of investments, including those made available from the parent sponsors. AUM from retail and other corporate sources will also have to be reported separately.
Sanjay Sinha, CEO of DBS Cholamandalam, told FE, ?We will comply with all that Sebi asks us to do. The regulator had thoroughly scanned all the books of the fund houses in September and October in 2008. So they are aware of the details.?
A senior Sebi official said it was premature to comment on the time line for implementation. But he said the regulator was not planning to ask for a company-wise list of investments in a fund to be made public. Unconfirmed reports said the regulator is investigating the books of a leading fund house, which increased its AUM by over 5,000 crore, based on an investment by its parent company.
Operations of fund houses are run on a percentage that is charged from the AUM and, therefore, a larger AUM means larger fees. September and October 2008 had seen massive redemptions from mutual funds, which made managing the operations difficult for many funds. Retrenchment and massive cost-cutting aside, some fund houses managed to beat the pressure by getting fund infusion from their parent companies. These funds have been withdrawn as the participation on the retail side has caught up.
Once the new guidelines come into force, the fund houses will have to report these inflows separately and will allow the regulator to know cases where AUM numbers have been artificially inflated. Fund houses may not have to reveal the exact organisational names and would simply have to create these categories and report under each section, say sources.
