20 AMCs get Sebi notice for flouting norms

Fund houses were found parking undeployed funds instruments not part of mandate

The Securities and Exchange Board of India (Sebi) has taken to task asset management companies (AMCs) for parking unutilised corpus in money market instruments which were not part of their schemes' investment mandate. According to sources, Sebi has issued notices to around 20 mutual fund houses for violating their investment mandate.

About 75 per cent of the breaches took place at eight fund houses, the regulator is said to have found while conducting a series of investigations and inspections.

By Sebi norms, an AMC cannot park funds in short-term deposits of banks in excess of 15 per cent of net assets of the scheme. The investment could be raised up to 20 per cent but only after the approval of trustees. Fund houses were found breaching the 15 per cent mark on several instances, a source said.

Risk-based routine inspections conducted by Sebi revealed that certain new schemes launched by AMCs were allocating more than 30 per cent of total funds in particular papers.

In its directive to the fund houses, the market regulator has asked AMCs to strictly abide by the investment guidelines. “AMCs are given money to allocate it according to the investment objective not to park the money in banks,” the Sebi notice to fund houses states.

The fund houses through the Association of Mutual Funds of India (Amfi) have formed a committee to give a reply to the regulator. “We are in touch with the regulator on the issue. AMFI has communicated to Sebi that in many instances, these breaches are passive and fund houses should not be punished for it,” said an Amfi member.

The regulator has taken the response into consideration but, with riders.

“We’ll not penalise AMCs for passive breaches. But, if such breaches continue, we’ll be forced to examine and penalise them on a case to case basis,” a Sebi official said.