Regulator turns the heat on MFs

Mutual fund CEOs have a new job these days: to answer questions the market regulator is raising about sharp practices around mutual fund IPO...

Mutual fund CEOs have a new job these days: to answer questions the market regulator is raising about sharp practices around mutual fund IPOs. The regulator, sources say, has raised questions on two fronts. One, the practice of advertising new issues as ‘par value’ paper or highlighting the fact that the units will sell for ‘only Rs 10’.

Although the mutual fund units in an IPO do sell at Rs 10 a unit — and units of existing similar schemes may be higher — there is no ‘premium’ on the older schemes. When the new fund goes into buy in the market, it will face the same prices as the older fund. An older fund may actually have lower costs due to its initial issue costs have been amortised already. The Indian Express had carried a series on such practices by mutual funds (IPO Games Mutual Funds Play) last month.

The second issue under the Sebi scanner has to do with the practice of amortising the initial issue expenses over five years. Market sources say that this rule may see some change soon. Sebi rules allow mutual funds to charge 6 per cent of the amount collected in a new market offering and spread this cost across five years so as to not hurt the net asset value in the first year. But a high churn sees the long-term investor lose since they bear the full cost of the issue, while the early exits escape their share of the cost.

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Reports say Sebi may change the rule so that investors who exist before five years will pay their full share of the amortised costs. Other issues in front of the regulator include assets under management (AUM) targeting, a practice that sees large fund houses pay to increase their AUMs at the month-end to stay ahead in the size race and the fact that mutual funds keep their focus on corporates instead of the retail investor.

Sebi set to relax IPO norms for listed firms

MUMBAI: Capital market regulator Securities and Exchange Board of India (Sebi) will simplify procedures for subsequent public offers by listed corporates having a track record for disclosures.

If a company stock is actively traded on exchanges and has a record for continuos disclosures, the regulator will allow for simplified procedures for their secondary offers, Sebi Chairman M. Damodaran said addressing a seminar on listing today. — PTI