Bring In Discipline Before Good Time Runs Out, SEBI Tells Mutual Funds
SEBI asks the mutual fund industry to bring in more discipline to the business
The market regulator wants fund houses to merge similar schemes, streamline nomenclature and lower fees at a time when total assets are close to Rs 20 lakh crore, growing on healthy inflows every month.
“Perhaps the good times won’t last too long, the good times may turn into normal times,” said G Mahalingam, whole-time member at the Securities Exchange Board of India. The message came at a capital markets summit organised by industry body FICCI.
SEBI Chairman Ajay Tyagi said the assets under management by the industry is nearly one-fifth of the assets under the banking system. “The industry is now competing with banking system.”
Indian mutual funds have seen net annual inflows of over Rs 70,000 crore for the last three years. The industry is getting Rs 5,000 crore per month through systematic investment plans, said Sundeep Sikka, chief executive officer at Reliance Nippon Life Asset Management Company Ltd.
Amid the surge in inflows, there are practices that the mutual fund industry should introspect and put back on track so that it is sustainable, said Mahalingam.
The regulator has been asking the industry to consolidate its schemes but the industry is yet to take steps in that direction. A balanced fund should be truly balanced in nature, we don’t want investors to regret later that they went by nomenclature and the fund wasn’t balanced at all.G Mahalingam, Whole-Time Member, SEBI
The industry needs to look at the total expense ratio considering its high volumes, he added. “Total expense ratio is far more favourable for the MF industry as compared to any other jurisdiction.”
Expense ratio, the SEBI whole-time member explained, is a percentage of total assets that is spent on running a scheme. Fund houses charge up to 2.5 percent. This is also a basis for the profits they earn from their operations, he said.
“The regulator wants expense ratio to be reduced as assets under management have risen on a fast pace. This is a good time for the industry to shrink its profits, bring in more investors into their fold”, said Mahalingam.