Mumbai, Dec 23: The Securities and Exchange Board of India (SEBI) will shortly come out with a model offer document for mutual fund schemes which will standardise the format and outline the minimum disclosures that need to be made.

This was announced by SEBI executive director Pratip Kar at a seminar on mutual funds organised by the Confederation of Indian Industry (CII). According to Kar, SEBI also plans to initiate a series of other measures as well.

The standard format will be introduced after consultations with the Association of Mutual Funds of India (Amfi). The format would involve scheme-specific disclosures of risk factors rather than stating general risk factors which are currently mentioned in offer documents. SEBI will also now insist on full portfolio disclosures.

In addition to this mutual funds would now need to provide a clear picture of the expenditure that they would need to incur, the complete background of the individual fund manager who would be handling the scheme, disclosures of investments in affiliate companies and a mention of the penalties that have been levied on the asset management company in the past.

Kar said that the PK Kaul committee is deliberating on how trustees need to be further strengthened and developed as frontline regulators.

According to a suggestion, if the mutual fund industry is to have an effective trustee, it is imperative to provide it with sound infrastructure support for carrying out its activities.

"Issues like who will bear the cost of providing this infrastructure are currently being discussed," said Kar. The need to develop a trusteeship mechanism of independent trustee organisations is also being discussed.Kar ruled out allowing mutual funds to invest in unlisted affiliate companies of the asset management company. He said that SEBI would shortly define more precisely the voting rights of unit holders.

Issues which need to be addressed on this front include whether one unit should constitute one vote or should one unitholder represent one vote. The circumstances where an extra-ordinary general meeting would be enough to take a decision and one where a vote through postal ballot should be necessary are issues which will be shortly addressed by the market regulator.

"We deliberately did not define it in the regulations even though we discussed this issue in the Mutual Fund-2000 report because we wanted to see the market evolving. Now that we see that unitholder voting is being resorted to and AMCs are required to go to the unitholders we will shortly define the guidelines more precisely," said Kar.

The UTI chairman suggested that the international practice of trustees insuring themselves against a liability needs to be incorporated in India as well.

Kar said that this can be done for liabilities arising out of acts of good faith but not for omissions and commissions.

DSP Merrill Lynch chairman Hemendra Kothari said that the ceiling of 5 per cent on the extent of business that a mutual fund can conduct through a single broker should be done away with as this forces a mutual fund to tap non-quality brokers for carrying out its trades.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.