SEBI recommends MFs investment abroad

Dwelling on the mutual fund industry, Mehta said that the regulator had set up a committee to look into ways by which the governance and functioning of mutual funds could be improved. The committee would work under the chairmanship of former cabinet secretary B G Deshmukh and consist of eminent people from the capital market, participation of Association of Mutual Funds in India Amfi, UTI and other market participants. The committee was in line withother committees on primary and secondary markets, he said.

In the last three months, sponsors and asset management companies (AMCs) of mutual funds had bailed out 15 assured return schemes with a collective shortfall of Rs 1,659 crore. Sponsors of UTI, SBIMF, GICMF, Canbank Mutual Fund and Punjab National Bank MF were forced to meet the redemption obligations of their assured return schemes, he added.

Mehta said that the companies should take the responsibility for transfer of shares in the least time. “From the 1.5-2 lakh complaints that SEBI receives per month, around 50,000 pertain to the time lag in the transfer of shares,” he said. Urging industry associations to take up the subject, he compared share transfer from seller to buyer to be similar to that of selling a car. "An owner of a Maruti car will not go back to the car company to take permission to sell the car," Mehta said.

He said the P K Kaul committee report giving powers to trustees would be approved at the next SEBI board meeting, andgo a long way in ensuring compliance among mutual funds. “As a result of auditors, compliance reports, empowerment of trustees and regulations the mutual funds will be able to garner more money."

Corporate governance was highest on SEBI’s agenda for the year and the recommendations of the committee should be ready by the next month.“We could possibly see audit committees for companies being set up or consolidation of accounts being made mandatory," Mehta said.

Earlier, inaugurating the seminar, newly appointed finance secretary P G Mankad said the mutual fund sector should restructure and innovate to attract small investors into its fold.

Calling for greater choice to the investors, he said "mere window-dressing" of mutual funds would not suffice. Instead of crowding the market with similar products, the industry should come up with instruments tailor-made for the unique needs of the Indian economy.

Mankad compared to the mutual funds in the US, which numbered over 1000, and said that the industryhad yet to pick up in India. This could be achieved only through innovation and expanding the role of mutual funds. The industry, however, had outgrown its upheavals and achieved a certain degree of maturity. "Now is the time to give a critical push to its operations to catch up with new challenges," he added.

"Domestic funds have performed well," he said, hoping that better NAVs would translate to better performance of the market. Expressing optimism about the future of the industry, he added that it was at an advanced stage of the learning process and poised for significant growth.

"The industry is at a crucial juncture and the seminar should hopefully provide ideas and strategy as how to approach the next millennium. Good corporate governance and growth of the mutual funds would certainly have positive impact on the economy," Mankad added, referring to the major role played by the Unit Trust of India (UTI) in the post-independent period.

Also speaking on the occasion, UTI Chairman P S Subramanyamemphasised the need for greater depth in the secondary market for easy manoueverability of large funds. There were a large variety of products in the market and mutual funds should be in a position to help small investors in handling the management of complex products in the market, he felt.

FICCI chairman Sudhir Jalan wanted the government to allow public provident funds to invest at least 10 per cent in the mutual funds. He said with inflation dropping to a record low, lending rates – ruling at a high 14 per cent to 15 per cent – also needed to lowered.