Kolkata: The Securities and Exchange Board of India on 10 August suggested a review of organizational structure of mutual funds following sharp growth in the industry.
Sebi wholetime member T C Nair said there was need for a review in the organization model currently followed by mutual funds as the industry was seeing rapid growth in assets under management.
It was not due to any shortcoming in the system that the review was being sought, but there is always a scope for improvement, Nair said on the sidelines of a seminar organised by Indian Chamber of Commerce.
Currently, mutual funds in the country operate in a 20-year old three-tier structure. In the pyramid structure, there is a sponsor at the top, followed by a trustee body and then the asset management company.
Association of Mutual Funds in India (Amfi) chairman A P Kurien said as it was an old system a relook at it compared to other international practice might give clues for improvement.
In some developed markets, there is a two-tier organisation structure.
“There could be one trustee body for all MF schemes instead of trustees for each fund at present. These are possibilities of the review,” Kurien said.
Nair did not mention any timeframe for the review to be complete. However, review will be done in joint consultation with Amfi.
On the subject of Self Regulatory Organisation, Kurien said “we are studying and discussing it”.
“Amfi is in the process of sitting with Sebi and identifying responsibilities that they want us to take. So the process is on, but it will take some time. Sebi will not pay for our work as an SRO. Members will have to fund it,” Kurien said.
Nair also recommended a dedicated distribution agency for mutual funds schemes in line with Life Insurance Corporation.
“There should be a dedicated distribution agency for either each AMC or of all companies,” he said.
However, it was just at the concept stage and nothing had been formalised, he said.
Sebi was not happy with the distribution system the MF followed. It has come out with a Code of Conduct for MF intermediaries.
Asked about real estate mutual fund regulation, Nair said a meeting would be held on 14 August with the Institute of Chartered Accountants of India on accounting standards.
Nair criticised the MF industry for not being able to penetrate the rural market and not developing social security schemes.