SEBI expresses concern over violations by AMCs

The Securities & Exchange Board of India (SEBI), the capital market regulator in India, has in a letter dated July 9, 2018, written to the chief executive officers of all 42 asset management companies in India and Association of Mutual Funds in India (AMFI) listing 25 violations by the mutual fund industry. SEBI had prepared the list of violations after monitoring the practices and decisions of the mutual funds during the two-year period from April 2014 to March 2016.

The letter reportedly comes in the wake of the recent violations involving HDFC Mutual Fund, which had allotted shares to distributors prior to its initial public offer, and ICICI Prudential Mutual Fund, which had invested in the IPO of ICICI Securities.

Some of the key violations listed by SEBI are as follows:

— Trustees’ approval was not obtained for dividend distribution or the power of trustees was delegated to the AMC officials to declare and fix the record date as well as decide the quantum of dividend under various schemes of the funds

— Non-compliance of guidelines pertaining to parking of funds in short-term deposits of scheduled commercial banks by mutual fund schemes.

— Investors belonging to T-15 cities and locations outside India incorrectly categorised as belonging to B-15 cities, leading to the excess charging of TER (total expense ratio) to the scheme.

— NAVs of schemes not uploaded or uploaded with a delay on AMC website.

— Non-compliance of KYC norms.

— Borrowing for purposes other than allowed under the regulations.

SEBI’s letter exposes some serious flaws in the functioning of the mutual fund industry. Hence, it is imperative that the AMCs mend their ways to make sure that the interests of investors are safeguarded. Also, the industry body AMFI should make sure that its members follow the guidelines in letter and spirit.