Sebi Mf Move Opens Pandoras Box

D R Mehta, chairman, The Securities and Exchange Board of India, announcedrecently that all mutual funds should be brought under a common mutual fund Act. The focus will now be on Unit Trust of India(UTI), the country's largest mutual fund.

Leading market players have indicated that several factors need to be taken into account to achieve such an objective.

There are those who vehemently support the special status accorded to UTI. A managing director of a leading investment bank said that level playing field for all mutual funds would mean dismantling UTI. "If level playing field means dismantling UTI, it should not be allowed to happen. The main reason is the sheer investment muscle that UTI has in blue chip companies. If UTI has to take pure investment decisions, it would lead to chaos in the market place. If at all domestic companies have any protection against corporate predators, it is through this investment of UTI," he said.

 

While it is desirable to provide for a level playing field, it is not necessary that UTI would have to be dismantled as a result of it. "UTI has a large network of agents which is unmatched by other mutual funds. It has been built over a period of 34 years. Even if other players are brought on an equal footing with UTI, it will not change the position of UTI in the market," a private sector mutual fund player said.

"A common mutual fund act and a level playing field is necessary as the competition is very unequal. On one side, we have UTI which has an umbrella act protecting its interests, while on the other, we have private players which, put together, do not have the corpus to match the strength of a single UTI scheme like US 64. There is a need for allowing the same exemptions in taxes for private sector mutual funds," a leading fund manager said.

Private sector players have expressed satisfaction at the Sebi move.

Senior UTI sources indicated that the Sebi announcement will again trigger the debate on the status of UTI.

A top level UTI official indicated that they are open to any suggestion. It is reliably learnt that a section of UTI officials are of the view that the UTI Act should be repealed.

The wrangle between UTI, Sebi and the finance ministry over the status of the UTI Act ended in UTI being restructured internally. However, this was not a solution to the issue. The most feared thing for the market is indecision on the issue.

The Sebi move will once again spark off a debate and papers will flow from one government department to the other. One has to wait and watch to see if there is any possibility of a logical conclusion to the debate that has been sparked off afresh by Sebi.