FMP regime to undergo radical change soon
A fund house can launch a fixed maturity plan within six months of getting permission from the market watchdog.
By Gaurav Pai, TNN |
MUMBAI: It could be a twin booster for mutual fund houses launching fixed maturity plans (FMP), a vehicle favoured by institutional investors. Close on the heels of reducing the fees for launching the products, capital market regulator Sebi is set to empower fund houses to launch FMPs without having to wait for the approval of the regulator, a person familiar with the development said. This is in line with Sebi���s stated policy of allowing mutual funds to launch schemes directly over a period of time.
Investors in FMPs are hoping for good yields (simply put, returns) in the months ahead as interest rates are expected to stay firm. With reduced fees and easier product launches, MF houses may also find launching FMPs convenient and perhaps more profitable than what they used to be.
Sebi recently announced that post-April 1, fund houses would have to pay only half a basis point of the total money raised or Rs 1 lakh, whichever is higher, against the 3 basis points they were paying earlier.
However, many fund officials point that although a reduction in fees is welcome, the April 1 deadline would mean that FMPs launched hereon would have two cost structures, at least for the fund houses.
Investors in FMPs are hoping for good yields (simply put, returns) in the months ahead as interest rates are expected to stay firm. With reduced fees and easier product launches, MF houses may also find launching FMPs convenient and perhaps more profitable than what they used to be.
Sebi recently announced that post-April 1, fund houses would have to pay only half a basis point of the total money raised or Rs 1 lakh, whichever is higher, against the 3 basis points they were paying earlier.
However, many fund officials point that although a reduction in fees is welcome, the April 1 deadline would mean that FMPs launched hereon would have two cost structures, at least for the fund houses.
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For instance, an FMP hitting the market in May obtained permission after April 1 would have to pay only half a basis point as fees. An FMP that has received permission before the date will have to pay 3 basis points, in effect, distorting the playing field for the two MFs launching FMPs. With competition being stiff in this space and margins wafer thin, this may not be a healthy trend, a fund manager points out.
A fund house can launch an FMP within six months of getting Sebi permission. However, most fund officials say fast-tracking of FMP launches is a market-friendly move. SBI Mutual chief marketing officer R S Srinivas Jain says that once operational, it should make launching newer FMPs convenient and hassle-free.
Sebi proposes the management and trustees of fund houses should bear responsibility for the good intentions behind a fund launch. An MF may now only have to intimate the regulator while launching an FMP.
According to market sources, Rs 80,000-crore assets are in the form of FMPs, and anywhere from 5 to 15 basis points (0.05-0.15%) is what the asset management companies make from the funds annually. So, on Rs 100-crore FMP assets, it would mean profits of a paltry Rs 5 lakh against Rs 1.25 crore for a similar corpus in equity funds. In the FMP market, Reliance, ICICI Prudential, UTI, HDFC and Franklin Templeton figure high up on the charts with Rs 3,000 crore-plus of assets each.
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