Sebi warns MFs against misuse of investor education funds

Mumbai: Taking note of the rising instances of mutual fund players improperly using the investor education funds, markets regulator Sebi today asked the industry to take corrective action or else the regulator will have to step in.

Under the Sebi rules, mutual funds have to spend 2 basis points of their assets under management on investor awareness education per year.

According to Sebi chairman UK Sinha, about Rs 500 crore have been raised between October 2012 and April 2015 but only Rs 330 crore have been used towards investor education by fund houses during the period.

Noting that some fund houses have not been utilising the money in a healthy manner, Sinha asked the industry “to take note of this seriously because we (Sebi) can’t be a silent spectator for years together”.

Addressing an industry summit organised by the CII in Mumbai, Sinha asked the fund houses to make “sincere use of these funds” failing which Sebi may have to do its own evaluation.

Sinha noted that when Sebi officials visited 18 locations where 22 Asset Management Companies (AMCs) have held investor education programmes, it was found that only 18 percent of them really did educate the investors.

While in close to two-thirds of instances (65 percent of such programmes), there was no surety of the timings of the programmes, and 6 percent of such events were purely distributors’ gatherings.

However, he said majority of the fund houses are doing a good job, and expressed hope “the industry will come together and take some corrective action where real purpose of investor education fund is met.”

Sinha said that merging of various MF schemes can bring down cost of ownership, and thus protect investors’ interests.

He added that fund houses have launched many new schemes to keep the agency commissions and fees high and this has led to rampant mis-selling of MF schemes.

“Sebi has been trying to motivate the industry that they should merge the schemes…one of the difficulties that the industry pointed out to us is the taxes which merging of schemes can invite,” Sinha said, and pointed out that the Budget 2016 has already clarified that the merged MF schemes will not attract any tax.

He said that maybe a year from now a substantial reduction in the number of schemes will be seen and it is done because a lot mis-selling is taking place with the new schemes.

Challenge for the industry is to generate business on a sustained basis and build trust in investors, he added.

Meanwhile, Sinha also said fund flows from MF industry is counter-pose for fund outflows through foreign portfolio investors and has helped bring in macro stability.

“Over the last few years with rapid growth of foreign portfolio investors, there has been an element of worry whether the domestic industry would be in a position to provide a cushion to foreign fund outflows.

But if we look at the numbers in April, May and June this year, while there are outflows from FPIs, the MF industry has been able to bring in more money and that has helped in macroeconomic stability,” he said.

PTI