The stock market regulator Securities and Exchange Board of India (Sebi) has asked mutual funds to compulsorily provide Application Supported by Blocked Amount (ASBA) facility to the investor in all new fund offers (NFO) launched on or after July 1, 2010. The move is intended to reduce the timeframe involved in the allotment of units to 15 days from the current 30 days taken in case of open-ended funds schemes and 45 days in case of closed-ended schemes.
The decision comes in the wake of regulators recent initiatives in bringing down the time frame involved in all primary market issuances. In a circular issued on Monday, Sebi also modified dividend distribution methods where mutual funds are allowed to pay dividends only out of realised gains. For this purpose, the unit premium reserve (the equivalent of share premium reserves in case of shares) was disallowed to be part of distributable surplus. The decision comes after the regulator observed that some mutual funds were using unit premium reserve for distribution of dividend, which essentially tantamount to dipping into capital. Experts feel the regulators decision will bring in more transparency and enable investors to judge a fund or scheme in a better way.
?This will impact the equity oriented schemes the most,? said Dhirendra Kumar, CEO, Value Research. He said ?The frequency and magnitude of the dividend declaration and payment will come down. But the decision will bring in more transparency in the way the industry functions.?
Mutual funds were also been asked to play a proactive role in improving corporate governance among public listed companies. In this direction each asset management companies (AMC) were required to disclose the actual exercise of their proxy votes in the AGMs of the investee company.