DLF ban: MFs say Sebi should not enforce all its rules on them

As DLF is unable to redeem mutual funds worth Rs 2,500 crore in view of Sebi's ban on the largest builder in a case pertaining to its IPO in 2007, MFs have said that the capital market regulator should not enforce all its rules on them.

"As a sectoral regulator, Sebi happens to be the regulator of mutual fund houses as well. But whatever decision are taken by Sebi on capital markets shouldn't be enforced on mutual funds," chief executive of a mutual fund house told PTI requesting anonymity.

It can be noted that Sebi on October 13 banned DLF, its founder chairman K P Singh and five other senior officials associated with the said company from accessing the capital market for three years for not disclosing some details about three of its 357 associate companies during the 2007 IPO of the company which had raised over Rs 9,700 crore from the primary markets.

The country's largest realtor on October 22 challenged the ban in the Securities Appellate Tribunal and had sought interim relief to redeem MFs worth Rs 2,500 crore and also to launch a Rs 5,000-crore domestic debt sale. The tribunal will hear the matter on October 30.

Proxy advisory firms also want a clarity from Sebi on the issue. "Until SAT overturns the Sebi ban or orders interim relief to DLF, the regulator's order stands for MF houses," Institutional Investor Advisory Services chief operating officer Hetal Dalal said.

DLF is not allowed to deal in securities as MF units are treated as securities, she added.

Meanwhile, the MFs' umbrella body the Association of Mutual Funds In India (AMFI) has sent an advisory note to the members in this connection indicating that Sebi ban does not include redemption of funds by DLF.

"Mutual fund units are securities within the meaning/ definition of securities. Hence, prima facie, the Sebi order seems to be applicable to MF units too.

"However, the purchase/redemption of units cannot be equated to accessing the securities market by the specified entity/persons against whom the order has been passed, which seems to be the intention of the Sebi order, since all MF units are not listed and therefore, not traded on the exchanges and units of open-ended schemes are subscribed to and redeemed on a daily basis," AMFI Executive Vice-President Balkrishna Kini said in a letter dated October 16 to the members.

Kini also said from this perspective, it seems that while passing the order, Sebi's intention was not to include MF investment transactions by DLF entities named in the order, as otherwise the order would have explicitly mentioned about the same.