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SIVASIVA (FCA, Future CA) (4935 Points)

07 May 2011  

Sebi chairman UK Sinha rules out reversing predecessor's policy on mutual funds, IPO pricing under Sebi scanner

MUMBAI: New Sebi chief UK Sinha on Friday said he does not intend to reverse rules put in place by his predecessor that restricted the ability of mutual funds to pay commissions to distributors. Indian fund houses, which manage equity and debt schemes with a corpus of over Rs 7,000,00 crore, were pinning hopes on a change in policies introduced by CB Bhave, whose three-year tenure ended in February this year. 

But in his first interview after taking over as chairman of India's stock market regulator, the former CEO of UTI Asset Management Company-the fourth-largest fund house-said a U-turn was not on the cards. 

"I don't think you can expect a policy reversal. But what we will do is to facilitate the widening of the geographical spread of the mutual fund industry, improve disclosures and focus on making mutual funds more investor-friendly," he told ET on Friday. 

In August 2009, Bhave had banned entry loads, or the commission paid to distributors, a move that has benefited investors but continues to draw howls of protest from the mutual fund industry. 

The so-called entry load refers to the industry practice of passing on 2.25% of the money paid by investors to buy units of mutual funds as commission to distributors. Asset management companies, which run mutual funds, have incessantly complained that distributors are no longer keen to sell mutual funds to investors. 

Sinha said he was mindful of the fact that there had been a net outflow in fiscal 2010-11 and a decline in the number of accounts of mutual fund investors, but investors have gained as all their money was being deployed in the market. Sebi had quantified such gains at over Rs 1,300 crore. 

The Sebi chief, who worked in the Indian Administrative Service for over three decades marked by stints in the banking division of the finance ministry, said a final call on two key policy initiatives-new rules governing takeovers and norms for ownership of stock exchanges based on the Bimal Jalan committee report- will be taken after the views of the government are taken into consideration. 

Sinha was in the finance ministry at a time the old financial institution ICICI was being converted into a bank, and later had a stint in the capital markets division of the ministry after which he quit the government half-way into the UTI job. 

There has been resistance from industry to some of the recommendations on takeover rules made by a committee headed by former head of the Securities Appellate Tribunal C Achuthan , notably the one advocating a ban on non-compete fee and the other mandating a public offer to buy out 100% of a company. 

"I have some idea of the thinking of the committees and there are strong views for and against. The general view of the Sebi board has been that we should encourage competition and our attempt is to take a decision at the earliest, " he said. 

Sinha also said a group has been formed to ensure that information provided to investors in the prospectus of initial public offerings helps them in taking the right decision. "Our understanding is that Sebi is asking for too much information in an unstructured manner which is again an area for improvement."