| The Mutual Fund Industry has a happy ending in | | | | appreciation amount of Rs. 5 goes into a separate |
| 2009 with assets growing to a fabulous high. The | | | | account called as Unit Premium Reserve (UPR). |
| industry also saw some investors' friendly | | | | This ruling might affect many fund houses which |
| regulations turning to be unfriendly for distributors | | | | used to declare dividends as a marketing gimmick |
| and IFAs. Starting from No-Load scenario post | | | | to attract inflows. After this ruling, many fund |
| Aug 01, 2009 to host of other regulations, SEBI | | | | houses have cancelled the dividends declared. |
| threw another set of regulations to all fund | | | | FoFs commission to decline |
| houses in the month of March 2010 signaling | | | | In case of FoFs, AMCs have been entering into |
| another round of reforms in world's fastest | | | | revenue sharing agreements with offshore funds |
| growing Mutual Fund industry. | | | | in respect of investments made. Typically they |
| Reduction of NFO's Period | | | | get around 50-100 bps from Offshore Funds along |
| Starting with the list, SEBI reduced the New Fund | | | | with 75 bps which they charge from investors. |
| Offers (NFOs) duration to a maximum of 15 days | | | | Out of 75 bps, they used to take care of |
| from 30 days for open-ended funds and 45 days | | | | marketing expense and other expenses. The Fund |
| for close-ended funds. On completion of NFO | | | | Houses used to pocket the sharing revenue |
| period, the units' allocation and dispatch of | | | | (50-100 bps) from Offshore or Local Funds where |
| Statement of Accounts (SoAs) are required to be | | | | they have invested. Post this ruling, an FoF may |
| done within five business days after the closure | | | | not be a profitable avenue for Mutual Funds in |
| of NFO period. The rule also says that Mutual | | | | India. |
| Funds shall make investments out of NFO | | | | Adherence to Corporate Governance |
| proceeds only on or after the closure of the NFO | | | | Since Mutual Funds invest in companies on behalf |
| period. The new rule is effective from July 01, | | | | of investors, SEBI wants them to be more |
| 2010. | | | | participating in company affairs and voice their |
| Introduction of ASBA for MF Investors | | | | opinions. SEBI has mandated that Mutual Funds |
| SEBI introduced ASBA or Applications Supported | | | | must disclose participation in company' annual or |
| by Blocked Amount in July 2008 for all equity | | | | other affairs such as exercising voting rights in |
| investors investing in IPOs or Right Issues to | | | | mergers, AGMs, changes to capital structure, |
| make effective use of money put into it. Under | | | | appointment or removal of Directors, stock option |
| this, the application money you put for subscribing | | | | plans and other management compensation issues |
| to IPOs/Right Issues does not leave your bank | | | | and many more in their website and Annual |
| account unless the allotment is done. So, there is | | | | Reports. |
| no need for refund of money, thus, reducing the | | | | Following Satyam scam, SEBI wanted the |
| operational issues and you also earn interest even | | | | companies to be more accountable for their acts |
| on blocked amount. Now, this facility is extended | | | | and business rules and Mutual Funds which |
| to Mutual Fund investors putting money in NFOs. | | | | represent a group of investors will be the best |
| Nevertheless ASBA means little for investors as | | | | fitted for this role. |
| most investors put money only on the last day | | | | Conclusion |
| of NFO period. Moreover, SEBI has mandated that | | | | Time to time, SEBI comes out with different |
| the fund house has to allot units five days after | | | | regulations which ultimately helps retail investors. |
| the closing of NFOs. | | | | Thanks to our robust financial system which |
| Dividend distribution from realized profits | | | | surpassed the economic crisis of 2008 post |
| SEBI also mandated that the dividends to be paid | | | | Lehman collapse, SEBI wants to ensure that India |
| to investors have to be out of realized profits | | | | remains decoupled with financial breakdown which |
| only. Currently, some Mutual Fund houses pay | | | | galloped major big names. Moreover, SEBI wants |
| dividends from their Unit Premium Reserve | | | | to make MF and its fund managers more |
| instead of booked profits. E.g. A fund XYZ has an | | | | transparent and accountable for investors' money. |
| initial NAV of Rs. 10. The amount Rs. 10 goes to | | | | However, the challenges lie ahead how the fund |
| an account called as Unit Capital or Face Value. | | | | houses implement these changes. Happy Investing! |
| Let us say the NAV grows to Rs. 15. The | | | | |