Sebi panel to chalk out crucial mutual funds reforms today

New Delhi | Mumbai: Sebi's mutual funds committee will consider crucial mutual funds reforms in its meeting on Tuesday to give a leg up to the industry that has seen inflows dry up.

The mutual fund advisory committee (MFAC) will consider making it mandatory for the asset management company to invest at least Rs 50 lakh in every scheme managed by it.

The move is largely aimed at building up investor confidence in schemes as the fund house will also be committing its own funds, said a person privy to the proposal. The MFAC is an advisory body set up by Sebi, and has as it members officials from the finance ministry, the regulator itself, experts from the field and representatives from the industry.

Tuesday's meeting has become important after finance ministry was galvanised into action by Prime Minister Manmohan Singh who after taking charge of the ministry said there were issues with the mutual funds industry that needed to be resolved.

Industry experts say though the contribution from AMCs to their schemes is not large but a lot would depend on how modalities of the proposal are worked out. "Such a contribution could have different meaning for different schemes like equity linked saving scheme or fixed maturity plan," said Vijai Mantri, MD & CEO of Pramerica Asset Managers.

He said that before deciding on the issue, there is a need to bring clarity on how this would apply. "For instance, what would be the duration of the investment and whether the amount would wary for a fund having Rs 5 crore or Rs 5000 crore under its management," he added.

The industry is pushing for Sebi's permission to increase expense ratio from 2.25% to 2.50% and allow fungibility on its use.

In addition to this, asset managers are asking the regulator to exclude service tax from expense ratio, which will take total expenses incurred by investors from 2.25% currently to about 2.8%.

The expense ratio includes management fees, administrative fees and other operating costs.

The issue of increase in expense ratio and allowing fungibility has alredy been discussed threadbare at the two meetings called by the finance ministry over the fortnight.

The committee will also consider a proposal to make it mandatory for asset management company to have at least Rs 50 crore of capital. Issues pertaining to the possibilities of asset management companies launching pension funds and ways to ease KYC process at the investor end will also be discussed at length.