MFs want breather amid spate of regulatory changes

Consistent regulatory changes over the past few years have started taking a toll on the Indian mutual fund industry. Though, most executives at fund houses admit that the steps are aimed at growing the industry, they complain in private that "there is no breathing space left ".

Earlier, soon after taking over as chief executive at Association of Mutual Funds in India (Amfi), HN Sinor had acknowledged the fact that regulatory changes were "too many and too soon", making industry unsettled.

"We have an astute regulator who understands the problem of industry and is concerned how to grow it. But problem lies when new circulars are issued and we wonder how to go about it," says chief executive officer (CEO) of a mid-sized fund house, who did not wish to be named.

UK Sinha, who took over Sebi's chairmanship last year in February, headed UTI Mutual Fund as CMD.

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 acclimatize with the new norms but it needs time and (we) cannot expect overnight improvement," he says.

Abolition of entry load on equity schemes was the turning point making distributors wary of selling MF products. Thereon followed stringent KYC norms, new debt valuation norms on weighted average market price, due-diligence of distributors, guidelines on transaction charges, mandate to banks to reduce their exposure in liquid funds to not more than 10% of their networth, 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 restless top official.

To a large extent it sounds true. For instance, different versions, conflicting interpretations, lack of understanding whenever Securities and Exchange Board of India (Sebi) puts up a circular has become too often. One of latest norms of single account statement is a clear example when fund managers had conflicting interpretations of the circular.

Industry's top CEOs, in a recent meeting with Sebi, requested that instead of continuous regulatory changes, a proper road map should be drawn up so that the industry is 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 mutual funds. Most of the regulatory changes are in favour of investors. Primarily, barring a few, all are on marketing and distribution front which have hit the balance sheets of several fund houses."

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

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