SEBI committee moots status quo in structure of mutual funds
AF Rosemary
MUMBAI, January 9: The SEBI-instituted PK Kaul committee formed to suggest better functioning of the funds management business is reportedly in favour of allowing the present structure of mutual funds to stay.Besides looking at ways in which trustees of mutual funds can carry out their responsibilities, as laid out in the Mutual Fund Regulations, 1996, the committee had also been mandated to consider the possibility of altering the structure of mutual funds so as to ensure greater efficiency. The committee members are of the opinion that the trust structure of mutual funds has been around for a very brief period. Barring some mutual funds set up by public sector units in the latter half of the eighties, most of the other funds have been around for barely 4-6 years. "We must give the present structure some time to stabilise," sources said. Besides, some members of the committee are of the opinion that any discussion on changing the structure will require legal experts, and hence, it is out of the scope ofthe committee. There had been a suggestion that an omnibus UTI and Mutual Funds Act, exactly on the lines of the UTI Act, be set up to govern mutual funds. Currently, apart from UTI which operates under the UTI Act, most of the other mutual funds are following a trust structure whereby the the board of trustees mandates an asset management company to manage the funds. UTI in its present set-up is fairly immune to the overlapping of responsibilities as far as trustees and fund managers are concerned. Although it has set up three asset management committees to oversee the management of three families of schemes, the board of trustees of UTI is wholly responsible for the management of the funds and the entire job of fund raising, research, stock picking and investing is done in-house. There is no overlapping of responsibilities and the trustees are also personally indemnified against any malfunctioning of the fund. However, other mutual funds have a problem because the trustees are serving in ornamentalcapacities as it is rather difficult for them to physically monitor the management of funds. Besides, with the Mutual Fund Regulations, 1996, imposing a greater responsibility on trustees, the trustees are said to be resisting it on the grounds that the demands being made on them go beyond the specifications of the Indian Trust Act. Also, there are several layers of reporting in the present set up. The fund manager reports to the board of directors of the AMC who in turn reports to the board of trustees. The board of the AMC and of the trustees have to independently report to SEBI thereafter. In the light of all these problems, the suggestion of an onmibus Act on the lines of the UTI Act was seconded even by the Association of Mutual Funds in India (Amfi). However, while they are still in favour of the UTI system, they are now reportedly ready to wait for some more years before any changes are effected.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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