When UK Sinha took over as the new chairman of the Securities and Exchange Board of India (Sebi) in February last year, the mutual fund industry was ecstatic. Reeling under the tough regulatory environment, it hoped for some friendly measures from a man they considered among their own.
The reality sank in soon enough; Sinha would find it tough to roll back most of the regulatory tightening effected during the tenure of his predecessor C B Bhave. Instead the new Sebi chief was attempting to find ways to help the industry funds grow within the existing framework.
Less than a month after assuming office, Sinha boosted the morale of the industry giving fund houses more leeway to utilise money lying in the load account. Load balances, he said, could be used for marketing and selling expenses including distributor?s/agent?s commissions.
But what the industry really wanted was the return of entry loads. The decision to ban entry loads had come as a rude shock to distributors and MFs though it was welcomed by investor associations. Sinha, incidentally, had been one of the most vocal critics of the entry load ban when he was the CMD, UTI Mutual Fund. So it wasn?t surprising that the media posed the question at every opportunity: Will entry loads be restored?
So far, that hasn?t happened. Sinha later clarified that there would be no rollback. Instead he introduced transaction charges allowing distributors to charge a transaction fee of R100 on every subscription of R10,000 and above. For new investors, distributors could charge R150, which would be deducted from the subscription amount and the balance would be invested. The move hasn?t really boosted sales of mutual funds but the MF industry is learning to live with it. In the meantime, Sinha has worked on other areas. ?Instead of effecting frequent minor changes, the Sebi chief has been able to look at the needs of the industry more holistically,? says Sanjay Sachdeva, CEO, Tata Mutual Fund. ?The thrust on long term pension products, the commitment to bring in transparency on the distribution front and the initiative to introduce the Investment Advisors Act are steps in the right direction,? he explains.
Sinha has constantly urged MFs to aim for long-term money, pulling up some players ? though not as sternly as his predecessor ? for not launching pension products. I don?t know why AMCs haven?t been able to launch successful pension products because legally it is allowed,? Sinha asked at a conference last month. Meanwhile, Sinha has also expressed his discomfort with the fact that bulk of MF assets comprise short-term debt and that corporate or institutional money still accounts for a large chunk of the AUMs. He has also tightened valuation norms for liquid funds.
That apart, Sinha has improved the transparency relating to disclosures. For instance, any scheme in existence for more than three years has to now disclose the point-to-point returns on a standard investment of R10,000 along with the CAGR. Fund houses have also been directed to disclose the total commission and expenses paid to distributors with respect to non-institutional (retail and HNI) investors on their website. ?In general, most changes have been neutral to positive for investors,? says a senior analyst with firm that tracks mutual funds.?However, the flurry of changes has caused some resentment among fund houses, which are struggling to implement them,? he adds. ?Unlike his predecessor, Sinha has been more focused on developing the industry rather than just intensely regulating it,? says Dhirendra Kumar, CEO, Value Research. ?The move to initiate retirement plans by MFs could help bring in long-term money and be a big game-changer for the industry. The R100 fee will bring in relief to small distributors,? he added.
The series ?One Year of Sinha? concludes