MFs struggle to meet Sebi deadline on disclosure

Industry expects a one-time delay as several issues pertaining to CAS yet to be worked out

It’s a race against time for mutual fund industry to meet market regulator Securities and Exchange Board of India (Sebi)’s requirement related to disclosure of commissions paid to distributors. Despite numerous representations by Association of Mutual Funds in India (Amfi), Sebi has stuck to the October 1 deadline for providing information related to commissions in consolidated account statements.

Fund houses are busy identifying past six months’ costs related to distributors. “It’s not going to be an easy task at all. It’s a significant challenge and we need luck and miracle to beat the deadline,” said chief executive of a public bank-sponsored fund house.

Mutual fund registrars and agents like CAMS and Karvy are responsible for sending periodic statements to investors. However, they depend on fund houses for the data on expenses and costs incurred on distributors. In short, timely dispatch of statements would depend on how fast fund houses implement the new regulations.

Only a few fund houses Business Standard spoke to said they kept track of spends on distributors in the form incentives. A majority of fund houses said they would struggle as they did not put in place systems to track costs on distributors by way of gifts, incentives and trips, among others.

However, the story does not end there. Registrars and agents need 8-10 days to process the data before providing statements to investors. N K Prasad, president and CEO of CAMS, said “We are awaiting updates from Amfi about what all costs need to be disclosed in the investors’ statements. But we too need time to process it as required mechanism needs to be put in place.”

C V R Rajendran, CEO of Amfi, said “Sebi has made it clear what all needs to be disclosed in absolute terms. So, CAMS and Karvy can go according to the regulator’s format.”

However, it will be interesting to see whether the fund houses would disclose costs incurred on distributors till September. According to sources, inclusion of September data is difficult. In general, monthly statements are issued by 10th day of every month. “No doubt, delay is expected for the first time. By the end of this financial year, we may streamline the data on half-yearly basis,” said a CEO.

Mutual Fund distributors have been opposed to this regulatory move. On their behalf, Amfi had suggested some changes to Sebi, which largely went unheard. Investors can now know how much money their distributor-cum-advisors have made as commission or other incentives.