Sebi to slow NFO rush

In the past year Indian mutual funds raised Rs 71,000 crore from investors. Most of these schemes were not different from the existing schemes. Many MF schemes have a little differentiation from each other.

The reason for the rush was that investors were mislead into believing that New Fund Offers are cheap, since units are issued at Rs 10 per unit. They did not realise that the Net asset Value, NAV, is a mere reflection of an underlying equity asset. On Thursday, Sebi Chairman, M Damodaran said that he had had enough.

Chairman, Sebi, M Damodaran, "We are going to ask the trustees to certify before they come up with an NFO, that they have looked at the existing schemes carefully and that a minor adjustment to the existing scheme will not adequately address this particular universe that they seek to cater to and that is why they are coming up with an NFO."

Mutual funds and distributors also pushed for NFOs as they got to charge a hefty 6% from investors towards issue expenses. Now they will have to launch a new fund only if it is unique from the existing basket of funds.

CEO, Chola MF, Sashi Krishnan, "There will be a lot more emphasis on selling existing funds, on performance and that I think is very important for investors."

CMD, UTI MF, UK Sinha said, "The market was being driven by distributors and not really by the interest of small investors. Trustees are the main trustees of the investors."

The mutual fund industry has been distributor driven and a victim of rampant miss-selling. Hopefully, Sebi's latest move will put an end some of the malpractice and bring cheer to investors.

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