REITs discussion hijacks key thematic fund matter during SEBI committee meet

SEBI

The Advisory Committee on Mutual Funds, which met earlier this week, could not decide on the key agenda item related to the proliferation of thematic funds as a presentation related to Real Estate Investment Trusts (REITs) and a surprise attendance of the SEBI chairperson took precedence over other things.

The committee, which has been set up by the Securities and Exchange Board of India to advise on key issues related to development and regulatory framework for asset management companies (AMCs), met on Monday but ended without any key decisions being taken.

According to sources familiar with the development, a presentation was made on the benefits of REITs and the measures that can be taken to further popularise it and the discussions around it took bulk of the time that was allotted for the meeting.

“The presentation was primarily around looking at whether REITs could be included in equity indices that could make the instrument more popular and also bring it on the radar of AMCs, especially in the context of index schemes that mirror the benchmark construct,” said a person familiar with the development.

“As a result, the key agenda item of thematic funds was not discussed and postponed. Now it is up to SEBI to decide whether it wants the committee to discuss that when it meets next or first seek views of AMFI (Association of Mutual Funds in India) and then bring it to the committee,” added the person.

Also Read: Mutual funds, SEBI likely to lock horns in key meet today on proliferation of thematic funds

This assumes significance because while SEBI rules permit fund houses to launch just one scheme within the 36 broad categories of schemes as laid down way back in 2017, thematic is the only category wherein AMCs have the freedom and flexibility to launch infinite number of schemes.

Sources add that the regulator is of the view that the proliferation of thematic funds is being done only to launch New Fund Offers (NFOs) and, more often than not, there is no real differentiation between the new thematic fund and an existing fund of the fund house.

Incidentally, NFOs allow AMCs to offer higher commission for distributors when compared to an existing scheme. A look at the number of schemes shows that some of the largest AMCs have more than 100 schemes on offer.

Interestingly, the committee meeting on Monday also saw a surprise entry of SEBI chairperson Madhabi Puri Buch who stayed for a while and spoke on various issues related to the role of AMCs, including the key responsibility of stewardship.

In 2020, SEBI had put in place a Stewardship Code for all mutual funds wherein responsibilities related to monitoring and actively engaging with portfolio companies were codified. Further, discussions with companies on various matters related to operational & financial performance, strategy, corporate governance, remuneration, and ESG policies among other things were also made a part of the Code.