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Need to improve on transparency, disclosure: Sebi
September, 10th 2009

The recent move by the Securities and Exchange Board of India (Sebi) banning entry load and capping exit load, among other things, has turned the spotlight on the possible improvement in rights of mutual fund (MF) holders in the country. Sure, we already have regulations in place.

But according to industry observers the Sebi move points to improvement in investor rights. The rights protection of mutual fund holders have been always been on top of Sebi agenda. It has also moved a great deal in the last few years towards improvement in this direction, says Devendra Nevgi, an independent investment consultant.

Here are the rights that are available to an MF holder as per Sebi Regulations on MFs:

A) An investor is entitled to receive statements of accounts in 6 weeks from the date of request for unit certificates.
B) He also has a right to receive information about investment policies, objectives, financial position and general affairs of the scheme.
C) He is eligible to receive dividend within 42 days of declaration, and the proceeds within 10 days from the date of redemption or repurchase.
D) Trustees are bound disclose to unit holders any information that could adversely impact investments.
E) With prior Sebi approval, 75% of the unit holders can terminate the AMC of the fund.
F) They can also pass a resolution to wind-up the scheme.
G) An investor can also send complaints to Sebi, who will take up the matter with the concerned MFs and follow them up till the issue is solved.

Does that mean that everything is hunky dory with MFs? To a certain extent, say experts. No fund house will take an investor for granted, as nobody wants bad publicity. Also, fund houses know that the Sebi is extremely serious about investor protection, says an MF advisor who didnt want to be quoted.

Nevgi says: If an investor writes to Sebi about not getting dividend or redemption proceeds on time, the regulator takes it very seriously. Even mutual funds treat those matters seriously. So those kind of complaints are very uncommon in the industry, he says. However, he feels there is scope for more improvement. When it comes to quantitative rights like receiving dividend or redemption cheque on time, things are very much in place. However, when it comes to transparency or frequency of portfolio disclosure, things can still improve.

The view is shared by many others. Transparency is a big issue. There are lot of problems like schemes with strange and funny names. Also there are lot of schemes which are repackaged where the investment objective and investment portfolio are not close to each other, says Nevgi. Complex schemes are the main issue. Name of the scheme or investment objective can be interpreted the way the manager wants. This can confuse investors. They would realise they invested in a wrong scheme only when things go wrong, says an expert.

Another area which most experts feel could improve is frequency of portfolio disclosure. They point out that since fund houses have the choice of making the disclosure of portfolio twice a year, many fund houses are lacking in this aspect. Some funds dont even bother to send detailed portfolio. Investors also should be blamed as they dont take it seriously. In fact, they should demand portfolio since that is the only way they will come to know how their money is invested, says the MF expert.

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