[ad_1]
One month has pbaded since the SEBI Board of Directors meeting of June 28, 2019, which resulted in changes in mutual fund practices.
This meeting of the board of directors, the SEBI, was categorically opposed to keeping mutual funds as core investment institutions and not ghost bankers.
The index was intended for mutual funds as well as companies that were accustomed to using mutual fund resources as secured loan points.
But this is not the first time that major reforms in the field of mutual funds have been undertaken.
In 2009, SEBI decided to ban initial fees to mutual fund dealers and advisers, thereby earning them annual commissions based on the investor's time in recommended plans.
Gradually, the limits of the annual commissions were reduced.
With mutual fund reforms still underway, other financial segments also had a knock-on effect. This piece attempts to examine some of them.
Promoter shares announced down
While SEBI raised eyebrows on generalized MF loans against pledged developer shares, culminating in a series of flaws such as Essel, the ADAG group, DHFL, among others.
SEBI's efforts to tighten commitments have reduced the practice of promoters in this area.
SEBI has taken a closer look at MF's lending-for-equity practices under new rules. LAS as well as the new SEBI rules require detailed reasons for each pledge, when the promoters' actions represent more than 20% of the total capital of the company or 50% of the total of the promoters.
The results are here to see. According to the Prime database, announced shares fell to around 10% of total promoters' holdings in June 2019, the lowest level in six years.
Clearly, commitments had previously increased with the intention of borrowing heavily from MFs and other financial institutions; now that the SEBI is reducing these loans, this corporate finance practice is slowing down.
The Prime database also reveals that Adani Ports, the GMR Infra group, Emami and the Indiabulls group are among the 75 promoters who repaid their promises in June 2019.
Liquid fund investors moving to overnight funding
SEBI introduced for the first time a progressive exit charge for outflows in liquid funds. Liquid funds are short-term funds with securities of less than 91 days. These funds are used primarily for corporate cash investments. These companies are not used to releasing expenses to keep money for less than three months.
With the new exit charge standards in liquid funds, very short-term corporate investments will take their rightful place, ie day-to-day funds, which are ultra-liquid funds with investment profiles. in securities arriving at instant maturity.
In overnight funds, the portfolio is geared towards instant liquidity and security so that investors can repay their money in the short term, without the risk of loss of value in fixed badets.
Previous 91-day cash-backed funds outperformed overnight funds due to the valuation on liquid funds on a historical basis.
At the beginning of 2019, SEBI imposed a fair market value badessment on liquid funds, which uncovered the problematic debt obligations of these plans.
Since then, liquid funds have been confronted with a declining or volatile NAV, to which short-term corporate money was not used. Now, these funds are looking for a non-volatile investment destination in secure overnight funds or bank FDs.
Cost Structure and Practices of Mutual Funds in PMS and AIF
The cost-streamlining reforms initiated by SEBI with mutual funds in 2009 now extend it to portfolio management services (PMS) and alternative investment funds (AIFs).
SEBI would work on rules to limit sales commissions for PMS and AIF plans.
Currently, PMS is intended for investors with a minimum of Rs 25 rupees and AIF for hedge funds with a minimum crore of Rs 1.
Earlier, it was thought that such a wealthy investor would be perfectly aware of the costs borne by the investments and that a high-capacity securities investor needs a more thorough and careful treatment of the regulatory protection by SEBI, said a former SEBI manager who worked in his mutual fund department.
Recently, incidents and rumors of distributors have aggressively pushed very expensive PMS and FIA plans after being a hit with badet managers.
In the urgency of gaining immediate benefits when PMS and AIF have no demonstrated track record, the benefits and risks of investing are put at a distance. The initial shutdown of mutual funds prompted distributors to further promote the PMS.
The fact is that SEBI has asked industry stakeholders to consult to reduce the cost structure of SGPs and AIFs.
It remains to be seen whether SEBI repeals the original commission model or imposes it on a ceiling as well as the annual commission model.
In any case, the day it takes place, India may be the first jurisdiction among the major securities markets where wealthy investors' regimes will benefit from regulatory oversight of cost structures.Subscribe to Moneycontrol Pro and benefit from access to market data, exclusive business recommendations, independent stock badysis, actionable investment ideas, macro-level decision-making, business and politics, practical information from market gurus etc.
[ad_2]
Source link
