Underperforming mutual funds under Sebi lens

Regulator will also probe AMCs for non-compliance of rules pertaining to fund objectives

The Securities and Exchange Board of India has said that it will question top officials of fund houses about non-performance of mutual fund schemes and probe their non-compliance with the stated investment objectives.

Concerned over non-performance of some schemes over a long period of time, Sebi Chairman, U K Sinha, said that fund houses need to look into the matter and consider the merger of some schemes.

Speaking at a CII mutual fund summit here, Sinha said that the regulator would also conduct inspection on AMCs (Asset Management Companies) for not following rules with regard to the fund objectives.

Every mutual fund scheme has a stated investment objective and they are supposed to invest accordingly.

Sinha said that the capital market regulator is considering questioning CEOs and fund managers of mutual fund schemes, which are not performing over a long-term basis since inception.

“Management (of mutual funds) should look into the areas of no-performance,” he said, adding that he is in favour of merger of schemes on case to case basis.

Pension schemes

He also said that nothing prevents fund houses to come up with pension schemes, but the issue of taxation needs to be solved.

“We are in touch with tax authorities and have sought similar treatment with the pension products,” he added.

Participatory Notes

About the recent flight of capital invested through P-Notes (Participatory Notes that allow rich foreign investors to invest indirectly through India-registered FIIs), the Sebi Chairman said that P-Notes have come down in the last few months and the Government and SEBI are encouraging QFI investment into the country.

QFI route

The Government recently came up with guidelines for encouraging overseas inflows through Qualified Financial Investment (QFI) route, which provides easier and more cost-effective compliance mechanism for foreign investors.

Sinha also said Sebi would soon come up with IPO guidelines regarding the safety margins, but did not give any timeline.