Market regulator Sebi is considering a proposal to put a 10 percent cross-shareholding cap in a mutual fund to avoid the potential conflict of interest.
Market regulator Sebi is considering a proposal to put a 10 percent cross-shareholding cap in a mutual fund to avoid the potential conflict of interest, PTI reported citing senior officials. If the latest proposal sees the light of the day, shareholding pattern of UTI Asset Management Company (AMC) will see an impact. State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Life Insurance Corporation (LIC) are having their own mutual funds and at the same time, they hold 18.24 percent stake each in UTI AMC. The issue would be taken up at the board meeting of Securities and Exchange Board of India (Sebi) tomorrow, they added.
About the proposal
As per the latest proposal by Sebi, any shareholder owning at least 10 percent stake in an AMC will not be allowed to have a 10 percent or more stake in another mutual fund house operating in the country. Further, a sponsor of a mutual fund, its associates, group company and its asset management company will be restricted from holding 10 percent or more stake in a rival AMC. In addition, such entities will be barred from having a representation on the board of another mutual fund house. The new norms are aimed at avoiding any conflict of interest and help in strengthening the governance structure for mutual funds. In addition, Sebi may come out with a new framework for Investment Advisor in order to segregate advisory and the role of a distributor. However, mutual fund distributors while distributing the investment product can explain the features of the product to client. To prevent the conflict of interest that exists between ‘advising’ of investment products and ‘selling’ of investment products by the same entity/person, there should be clear segregation between these two activities, the officials said. Existing registered investment advisers who are offering distribution services through a separate division would be given an option to choose between providing investment advice and distribution service before March 31, 2019.
Mutual funds have added over Rs 6 lakh crore to their asset base in 2017 and the uptrend is likely to continue in the new year, helped by a spirited promotion campaign by the industry and post-demonetisation resurgence of financial investment products. The industry is looking at an increase of nearly 40 per cent to the total asset under management (AUM) as the year 2017 draws to a close, after attaining a record level of Rs 23 lakh crore at November-end itself — up from Rs 16.46 lakh crore at the end of December 2016. The investor count is also estimated to have risen by over 1.7 crore during the year. Moreover, the fund houses are expecting similar ‘healthy’ growth in AUM to continue in the new year as the penetration levels of mutual funds are still very low in the country and various reform measures initiated by the regulator Sebi should help too.
With PTI inputs