Finance SRO for distributors? No thanks, say MFs

Fund houses have shown disinterest in financing the operating costs of the self-regulatory organisation (SRO) proposed by the capital markets regulator to regulate distributors.

A day after reports suggested that Securities and Exchange Board of India (Sebi) wants recurring cost for the operations of SRO to be borne out by asset management companies (AMCs), industry executives questioned why they should foot the bill.

The cost to be borne is around two to three basis points (one basis point is one hundredth of a percentage point) of the assets under management (AUM).

Though Sebi has not yet officially informed AMCs about this move, industry chief executives say the regulator might not find takers for this proposal.

"I am against financing such an SRO. Why should I?" asks the chief executive officer (CEO) of a mid-sized fund house. According to him, already fund houses pay for industry body Association of Mutual Funds in India (Amfi), which has not yet been made an SRO.

The chief marketing officer of a large-sized fund house agrees. "The industry is operating with wafer-thin margins. Two to three basis points make anywhere between Rs 150 crore and Rs 225 crore, which is not a small chunk of sum for a nascent industry like ours," he adds.

Earlier this month, Sebi in its circular had asked AMCs to set apart at least two basis points on daily net assets within the maximum limit of total expense ratio (TER) for investor education and awareness initiatives.

This too, has not gone down well with the industry. Officials say that two basis points should not be on overall AUM, rather they would prefer if it to be on the retail equity assets.

"In the debt funds and fixed maturity product (FMP) category the margins are very squeezed. Moreover, institutional investors do not need any awareness," adds the chief executive.

Fund houses are likely to take up the matter in a meeting with Amfi on Thursday.

As on August 31, net assets under management of the fund industry stood at Rs 7.52 lakh crore, of which equity assets comprised Rs 1.76 lakh crore.