The good news is SEBI the regulatory body for Mutual Funds has been very active for last few months and this has favoured small Mutual Fund investors most of the time. A few days back it passed on a notification which essentially has five major changes. Let’s see how each one of it affect the retail investors:
ASBA, for Mutual Fund NFOs (New Fund Offer)
Change: Money would be debited from your account only after the NFO closes.
Benefit: You continue to earn interest on the same. Remember the savings account would now get interest on daily basis from 1st April 2010. Read the details here
NFO Period reduced
Change: Period of all NFOs have been reduced to 15 days. ELSS NFOs would still be allowed 90 days as before. Allotment period for NFOs have also been reduced to five days from 30 days earlier.
Benefit: Now you have not to wait for ages to get your allotment
Experts take: Some experts’ feel that five days is too small a period for Mutual Funds to collect cheque, deposit them and allot the units for far flung areas. It may be operational and logistical challenge.
Dividends payout only from realized gains
Change: fewer dividends for investors
Benefit: No marketing gimmicks by MFs by declaring fake dividends which was nothing but a form of returning investors money after deducting their expenses.
Make corporate governance in invested companies stronger by playing an active role
Change: Represent the small investors’ interest in the invested companies. Sebi has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, de-mergers, corporate governance issues, appointment and removal of directors.
Benefit: Remember Matyas & Stayam scandal last year. It was the active fund managers which helped lakhs of investors being cheated. Going forward a more active role in would lead to better corporate governance.
No revenue sharing arrangements for fund of funds (FoFs) investing abroad
Change: Life just got tougher for fund of funds (FoFs) that invest their entire corpus in international funds. Typically, FoFs charge a maximum of 0.75% per annum. Out of this, the MF pays agent commission and incurs costs on running the scheme and keeps what is left, which fund houses claim is a pittance. To compensate, FoFs enter into a revenue sharing agreement with international funds in which they invest. The international fund pays a small portion, typically 50-80 basis points, to the Indian FoF, which would then retain this amount as its income. Sebi has now put a stop to this revenue sharing agreement.