Sebi warns MFs over breaches

The Securities and Exchange Board of India (Sebi) has pulled up the mutual fund (MF) sector for not complying with the ‘20-25’ minimum exposure norm and for misuse of funds meant for investor awareness programmes.  

By Sebi norms, any MF scheme is required to have at least 20 investors, with each owning less than 25 per cent of the assets.

However, U K Sinha, chairman of Sebi, said on Thursday that several MF schemes were in violation of this norm, with investor concentration in some schemes as high as 98 per cent.

“In some cases we found that while at the end of one quarter a particular investor who had more than 25 per cent had somehow complied. But immediately when the next quarter starts, he is again seen crossing that limit,” said Sinha at the 10th CII Mutual Fund Summit.  

Sebi is said to have written to as many as 30 MFs on this breach.

Regulatory sources have said several large institutional investors and wealthy clients, who often park their surplus cash in debt schemes, often end by breaching the single investor cap.  

MF officials said the breach of investment limits was largely due to operational difficulties. And, that other intermediaries should also be held accountable for this.  

“Such practices pose huge systemic risk. There are other stakeholders in the industry who deal with such data on a daily basis, like the registrars, who could act as whistle-blowers and keep the regulator informed,” said Killol Pandya, senior fund manager, debt, LIC Nomura MF.  

There is also misuse of the funds meant for investor awareness and education. The Sebi said there are fund houses which meet distributors under the disguise of such awareness programmes.  

“Sebi was expecting that the money will be very well utilised and will have an impact. I request all the chief executives and the trustees to also look at the quality of these programmes and the manner in which they are conducted,” said Sinha.  

Last year, the market regulator had asked fund houses to set aside money equal to two basis points from their revenue to be used for investor awareness and help in increasing the reach of MFs. The regulator said only a handful of participants would have benefited from such programmes.  

“The MF industry has so far conducted 41,000 investor awareness programmes, reaching as many as 1.2 million people,” contended Sundeep Sikka, chief executive of Reliance MF.  

Further, Sebi has asked fund houses to comply with the new norm of maintaining at least Rs 20 crore (Rs 200 million)of assets for debt schemes, a move that could see closure of several. Sebi says there are 69 debt schemes with assets of less than Rs 20 crore (Rs 200 million).