Sebi to probe MFs for non-performance, non-compliance

Addressing a CII-Summit, Sinha expressed concerns plaguing the mutual fund industry. He said that asset management companies were not communicating well enough about the long term benefits of investing in mutual funds. At the same time, the regulator said funds performing poorly over long periods of time needed to answer not just to unitholders, but also to the regulator.

Without naming the AMCs, Sinha said there were nine of them whose majority of schemes (over 50% or even all the schemes) have been underperforming scheme benchmarks for three years in a row now. And there were nine other AMCs, where upto 50% of the schemes were underperforming their benchmarks for three years.

Though, investors in these schemes had the freedom to switch to other better performing fund houses, it is still a cause of concern, he added. Sinha said the trustees of these AMCs needed to take stock of the situation and take corrective measures. "We will engage with the CEOs, fund managers of these AMCs to find out the reason for the poor performance," Sinha said.

What Sinha left unsaid is that AMCs underperforming consistently should perhaps ask themselves if they should be in business at all. The removal of entry load since August 2009 has been one of the key factors for the sharp drop in equity schemes of mutual funds.

To add to that, bearish market conditions—save for brief phases—for much for the last three years have dampened whatever little appetite investors had for equity schemes.

This has led to the profitability of the industry in general taking a knock, and industry players feel many unviable AMCs will have to close shop in the coming months as there are no buyers for them.

About the recent flight of capital invested through P-Notes (Participatory Notes that allow rich foreign investors to invest indirectly through India-registered FIIs), Sinha said that P-Notes have come down in the last few months and the government and Sebi are encouraging QFI investment into the country.

The government recently came up with guidelines for encouraging overseas inflows through Qualified Financial Investment (QFI) route, which provides easier and more cost-effective compliance mechanism for foreign investors.

Sinha also said that Sebi would soon come up with IPO guidelines regarding the safety margins, but did not give any timeline.

(With inputs from PTI)

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