MFs seek break from regulatory changes

Complain of too many and too soon, want a halt and discussion on a road map to indicate direction.

Continuous regulatory changes in recent years have started taking a toll on the mutual fund (MF) sector.

Though most executives at fund houses admit the steps were aimed at growing the industry, they complain that "there is no breathing space left".

Earlier, soon after taking over as chief executive at the Association of Mutual Funds in India, H N Sinor had said regulatory changes were "too many and too soon", making the industry unsettled. "We have an astute regulator who understands the problems of the industry and is concerned on how to grow it. But the problem is when new circulars are issued and we wonder how to go about it," says the chief executive officer (CEO) of a mid-sized fund house, who did not wish to be named.

U K Sinha, who took over head of the Securities and Exchange Board of India (Sebi), the market regulator, was earlier chairman of UTI Mutual Fund.

Adds another fund manager: "We are grappling with changes which have come in a very short span of time. The changes have thrown the whole industry's business model out of gear. We are trying to acclimatise with the new norms but it needs time and (we) cannot expect overnight improvement."

Abolition of entry load on equity schemes was the turning point making distributors wary of selling MF products. Then followed stringent know-your-customer (KYC) norms, new debt valuation norms on weighted average market price, due diligence of distributors, guidelines on transaction charges, mandates to banks to reduce exposure in liquid funds to not more than 10 per cent of net worth, KYC norms for foreign investors and the consolidated account statement.

Other chief executives Business Standard spoke to say it is hard to keep a count of changes. "I get confused amid so many changes and cannot keep track of them at a given point of time," explains a top official. Differing versions, conflicting interpretations and lack of understanding when Sebi puts up a circular has become a feature, it is agreed. One of the latest norms, on a single account statement for customers, is a clear example when fund managers had conflicting interpretations of the circular. In a recent meeting with Sebi, the industry's top CEOs requested that instead of continuous regulatory changes, a proper road map be prepared so that the industry was aware of the shape of things to come.

According to Dhruva Chatterjee, senior research analyst at fund tracker Morningstar India, "Fund managers are feeling the heat because of the bad year for equity markets and MFs. Most of the regulatory changes are in favour of investors. Primarily, barring a few, all are on the marketing and distribution front, which have hit the balance sheets of several fund houses."

The industry needs stability in terms of regulations, rather than issuing circulars one after another, says the CEO of one of the oldest fund houses. There should be more of cajoling and hand-holding, as these are initial times for the industry to grow, he adds.

Another issue fund managers cite and have recently apprised the regulator is on discussing the pros and cons before issuing statements. "Once a circular is issued, it is hard for the regulator to take it back, for whatever reason. Our point is, the industry should be told and discussed with before any regulatory changes come up," he says.