Sebi unlikely to review MF dividend norms

The Securities and Exchange Board of India (Sebi) is unlikely to review the dividend payment norms that bar fund houses from giving payouts from the unit premium reserve.

According to people familiar with the development, top representatives of the Association of Mutual Funds in India (Amfi) met Sebi officials on Friday to convince them to revisit the norms, issued in April, but did not meet any success

“While Amfi made another representation on the March circular, Sebi officials said chances of giving it a second thought were minimal,” said a person privy to the development.

The issue came up in March after Sebi observed that some fund houses were using the unit premium reserve instead of realised gains to pay dividends.

Sebi, in its circular, said, “The unit premium reserve, which is part of the sale price of units that is not attributable to realised gains, cannot be used to pay dividends.” The regulator said a part of the sale proceeds that represented unrealised gains should be credited into the unit premium reserve and not be treated on a par with the unit capital. The same should not be used to determine the distributable surplus, it said.

The fact that Sebi is against reviewing the norms is bad news for fund houses. Amfi has been talking to Sebi on these norms for over two months now.

“The step taken by the market regulator is not in the interest of the fund industry. Units of mutual funds cannot be treated on a par with companies’ shares. The auditors feel that Sebi’s step is not right,” said the chief executive officer of one of the largest domestic fund houses.

Another top official of a fund house said the issue was a “hardcore technical one” and involved “consultation with accountants”.

However, some fund managers agree with Sebi’s point of view and say there is little possibility of a review.

“Sebi has a strong argument and may not heed the industry’s concerns,” said an industry player. “There seems to be thin possibility of any softening of the regulator’s stand.”