MFs seek meeting with SEBI over clarification on expenses: Report


Moneycontrol News: The mutual fund (MF) industry wants to meet with the Securities and Exchange Board of India (SEBI) to seek clarity on its latest diktat that all scheme-related expenses be booked in the respective schemes, Business Standard reported. Industry players have asked the regulator if redemption-related borrowing costs could also be included in the asset management companies' books, in the case of liquid funds. Liquid funds are used by large companies to park excess cash and therefore, redemptions are also large. To meet these redemptions, funds usually approach banks. "We would request SEBI's guidance and clarity with respect to borrowing costs if it would be in order for AMCs to bear that portion of borrowing costs which exceeds the day's yield to maturity of the scheme," the letter, reviewed by the publication, read. The net asset value (NAV) of these schemes will be negatively impacted if these borrowing costs are adjusted in the liquid schemes. On the other hand, experts also say this move affects the profit margins of the funds. The market regulator is reviewing norms to make liquid schemes better equipped to deal with tough market conditions and volatile flows. It was reported earlier that some of the proposals being considered are reducing investor concentration and flow of less than seven-day money. Liquid funds have been under the spotlight after a series of defaults by Infrastructure Leasing & Financial Services (IL&FS). Liquid schemes had to manage redemptions worth Rs 2.1 lakh crore in September. As a result, the regulator issued a circular on October 22 saying that all scheme-related expenses must be booked in the respective schemes, to bring about more transparency in the process. The letter also addresses queries about non-cash commissions to distributors. In its circular, SEBI had stated that MFs would be required to adopt a full trail model of commission in all schemes “without payment of any upfront commission or upfronting any trail commission, directly or indirectly, in cash or kind”. Some funds hold contests which provide benefits to distributors such as international cruises or foreign trips, on the basis of their contribution to the fund's assets under management (AUM). MFs wanted to know if these programmes will be considered upfront payment, and therefore, must be stopped. MFs asked the regulator if sending their distributors to institutes across India or abroad for management and related courses will be considered as an upfront payment. SEBI had clearly stated in its circular that there is no need to discontinue these programmes if they are not being used to give non-cash incentives to distributors. According to the report, the industry wants an exemption from having to disclose scheme AUMs on a daily basis, saying that it could propagate unhealthy competition and attract unnecessary media scrutiny. They have also asked the regulator for a list of expenses that can be treated as scheme-related expenses, with their own suggestions about which expenses must be included.This list was updated last in 2009.

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Date: 2018-11-20 11:03:09