Mutuals Rail Against Capital Base-Funds Link

Mutual funds have not taken kindly to Securities and Exchange Board of India (Sebi) chairman, D R Mehta's announcement that the regulator was considering a proposal to link the capital base of asset management companies (AMCs) to the funds managed by them.

Most mutual fund chiefs, barring the odd one or two, said there was no need for capital adequacy as none of the schemes offered assured returns.

The chairman of the Association of Mutual Funds of India (Amfi) A P Kurian said, "It is not necessary as asset management companies are just managing the funds on behalf of the investors and their capital requirements have nothing to do with the size of the assets under their management."

"World over there is no such requirement, at least none that I have come across," he asserted. He confirmed that Sebi had not approached Amfi with the proposal and pointed out that while capitalising AMCs for infrastructure purposes was a relevant step, "it (capitalisation) cannot be related to the assets."

Chief executive of Kotak Mahindra Mutual Fund (KMMF), Shekhar Sathe echoed similar views saying it did not make any sense considering the current regimen under which the mutual funds are run.

According to Niamatullah of SBI Mutual Fund, apart from the risk aspect of it, if the purpose of the prudential norms was to maintain liquidity, the trustees of mutual funds have the authorisation to seek lines of credit from commercial banks in order to tide over temporary resource crunches.

"We are not like banks, where we have a specified liability to investors," the chiefs said, adding, "we were only managing assets on behalf of the investors."

That capital adequacy would raise the expenses for the AMC, was the prevalent feeling amongst most mutual fund chiefs.

Mehta announced that prudential norms for AMCs would be considered at a seminar in the city on Tuesday, after Y H Malegam made the suggestion that AMCs should have a minimum capital of two per cent of the assets under their control.

Only Sanjay Sachdev, managing director and CEO of IDBI-Principal AMC took the view that it was a step in the right direction.

According to him, AMCs should be sufficiently capitalised to ensure a minimum liability towards investors in case of any shortfall.

"We have a responsibility towards the investor, whose funds we manage," he said.