In a curious turn of events, some members of the Securities and Exchange Board of India’s advisory committee on mutual funds (MFAC) are questioning the minutes of a recent meeting that discussed measures to bring back investor interest. The measures suggested by the panel will be considered by the regulator in its board meeting scheduled on August 16.
According to people familiar with the development, some of the contents of the minutes were never discussed or even mentioned in the four-hour meeting on July 17 and the members are planning to protest against their inclusion in the minutes.
The main bone of contention is the inclusion of an additional item in the minutes suggesting asset management companies can be allowed to charge an additional two per cent towards marketing expenses in centres outside the top 15 cities.
Some industry players have interpreted it as the return of entry load, banned by the Sebi in 2009 under C B Bhave. Even the current Sebi Chairman had said he was not in favour of a reversal. Entry load was an upfront fee of up to 2.25 per cent charged by mutual funds, passed on to the distributor as commission.
It could not be immediately ascertained who prepared these minutes. Sebi officials were not available for comment.
The members said such a measure of an additional two per cent charge, which could make mutual fund schemes as expensive as other high-cost products such as unit-linked insurance plans, was never discussed in the meeting.
Further, even the return of entry loads in any form was unanimously voted against. “It was unanimously decided in the meeting not to bring back entry loads,” said M S Apte of Lokmanya Seva Sangh, a Mumbai-based investor association and a member of the MFAC. However, he added, several measures to bring back investor interest such as tax breaks, an increase in the expense ratio, etc, were discussed.
The Sebi had formed a 16-member committee headed by former State Bank of India chief Janaki Ballabh to advise the regulator. The panel consists of eminent professionals from across the industry, including chief executives of mutual funds, trustees, a bank chairman and investor representatives.
Another member of the committee said, “That it was suggested to bring back entry loads is a lie. It was not even discussed. To facilitate investments from outside top 15 cities, it was suggested a higher expense ratio be allowed for these areas. However, even that was nowhere near two per cent. It was supposed to be within the 30-40 basis point increase in expenses.” Two other members declined to comment on the issue.
A chief executive of a mutual fund, not part of the committee, said a two per cent charge for a new customer did not make any sense. “This will mean the expenses for the investor will be four-five per cent. That will be counter-productive,” he said.