Securities and Exchange Board of India (Sebi) chairman UK Sinha on Tuesday came down heavily on mutual fund houses for lack of discipline on upfront commissions and warned them of punitive action if corrective measures were not taken. While lauding the industry for its impressive growth over the last few years, Sinha also faulted fund houses for failing to take investor education seriously.
Noting that the domestic mutual fund distributors get one of the highest upfront fees in the world, the Sebi chief asked the industry to keep such fees within manageable limits. “Nothing stops us from stepping in. But, in my view, we should refrain from taking action unless it is warranted because when Sebi takes action on how much commission should be paid, or not paid, it will be, one, very harsh and, two, impact a large number of players. Also, doing away with it would be difficult,” he said.
Sinha, while addressing the CII Mutual Fund Summit here said: “Not only Sebi but the whole government is worried about this and we have already set up a high-powered committee to look into the type of cost and fees that are being charged to MF investors. So, this is not an issue which an AMC can wish away… Fund houses should read the writing on the wall and introduce some self-discipline.”
Sinha also expressed concern over the slow pace at which advisors have registered with Sebi under the Investment Advisor Regulation.
The Sebi chief raised the issue of MF players improperly using investor education funds. Under Sebi rules, mutual funds have to spend 2 bps of their assets under management on investor awareness education per year. Sinha said about R500 crore was raised between October 2012 and April 2015, but only R330 was used towards investor education. .
Fund houses were also pulled up for violating the 91-day norm for investing in fixed deposit receipts of banks.