Sebi mulling action on MFs for compliance on NOC withdrawal

Market regulator Securities and Exchange Board of India (Sebi) is believed to be contemplating stricter rules for mutual fund (MF) houses as some of them are resorting to restrictive trade practice by creating irritants for investors wanting to shift to a new distributor.

Some MF houses are asking investors to obtain a no-objection certificate (NOC) from previous distributors if they want to shift to a new one. While getting an NOC from the previous distributor for shifting to a new one has long been declared a 'restrictive trade practice', some of them are still asking for such NOCs, a senior fund manager with a leading Asset Management Company (AMC) said.

MF industry body Association of Mutual Funds in India (AMFI) had also advised all the fund houses to discontinue the practice, he added. As Sebi's earlier guidance to AMFI and fund houses has not yielded desired results, the market regulator is now looking at stricter norms for compliance on part of the fund houses, sources said.

Earlier in August, Sebi had directed AMFI to ensure MF investors wanting to switch distributors are not asked to get an NOC from existing distributor. "Despite the circular, most AMCs insist on going back to the previous distributor for getting NOC. But it is a restrictive trade practice as no fund house would be willing to let investors shift investments," another industry player said.

Around two years ago, AMFI had written to AMCs, asking them to withdraw the NOC clause. The clause had originally been introduced in 2002 when guidelines for distributor change during investment tenure were being framed.