Fund Houses Also Asked To Refrain From Launching Similar Schemes
KN Vaidyanathan, an executive director at the Securities and Exchange Board of India (Sebi), in charge of the mutual fund industry regulations, has met top executives of asset management companies individually in the past one week.
The interactions have been largely intended to push mutual funds to reduce the number of schemes, discourage launch of similar products and provide a common account statement for all investors, said four industry officials privy to the development. None of them were willing to be quoted, because of the sensitivity of the matter.
"We were told to come with all the relevant documents related to our operations for the regulator to understand the business practices better," said a chief executive of a private mutual fund. "In our discussions, we were advised to trim our product offerings to reduce risks and improve services to investors," he said.
Sebi chairman CB Bhave, in an industry body forum on mutual funds in June, had asked asset management companies to 'streamline their 3,000-odd product offerings to make them more investor-friendly'.
"Even if you put before me 3,000 investment products, I won't know how to choose from those products. I'll have no idea of which scheme is good for me," Mr Bhave said then, lashing out at the practices of the industry. "If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?" the Sebi chief said.
Vaidyanathan, whose tenure with the securities market regulator, has drawn sharp criticism from the mutual fund industry, also asked fund officials to refrain from launching schemes almost similar to the ones they have and focus more on the flagship products, said one of the four industry officials quoted above.
"The message from Sebi is very clear; don't come to us for permission to launch products similar to the previous ones, though it was not put across in as many words," the official said. "Also, we have been told if your fund is coming with a differentiated product, different people should run it," said one official, who attended the meeting.
In an interview to ET in October, Vaidyanathan had said the regulator was restraining mutual funds from launching new fund offerings at random.. Mutual funds were misusing the new fund offer option to pay higher commissions and also because some investors continue to believe that by getting units at par they are getting them cheap, he said. The regulator has also directed mutual funds to speed up the implementation of consolidated statement of accounts, where investors can view all their investments across schemes at a time, another mutual fund industry said. Currently, MFs dispatch separate account statements to clients.
Vaidyanathan is learnt to have reiterated the regulator's advice to mutual funds to invest more in investor education. A recent initiative by the Amfi, where every AMC is required to conduct at least five investor camps across cities every month to promote mutual fund products to new investors, is yet to find favour among all members. Mutual funds consider this activity wasteful as distributors are not willing to push equity products after the regulator in August 2009 banned funds from charging investors an initial fee, known as entry load, to remunerate distributors.
