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

This was disclosed by the SEBI executive director, Pratip Kar, at a seminar on mutual funds organised by the CII.

Kar clarified today that the mergers, amalgamations and takeovers of mutual funds would not come under SEBI's purview. He, however, added that mergers and takeovers of the AMCs should be subject to the approval of the unit holders.

SEBI regulations for mutual funds only say that the mergers and takeovers for mutual funds should be subject to approval by unit holders, but the mergers or change in control would be under the Department of Company Affairs (DCA) and civil courts, Kar said. He said the standard format for MFs will be introduced after consultations with the Association of Mutual Funds of India (Amfi). This format would involve scheme specific disclosure of risk factors rather than mere general risk factors which are currently mentioned in offer documents. Sebi will also now insist on full portfolio disclosures, he added.

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. Some of the issues that have been discussed so far are that sound infrastructure is imperative for a trustee to be effective. "Issue 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 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 is another issue 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 is 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.

About the takeover and mergers, he said any new AMC that is formed after a merger or change in control would have to seek new registration from the SEBI. On the performance of mutual funds, the SEBI executive director said the mutual funds had shown good performance during the first nine months of the current financial year and increased their market capitalisation.

He said the mutual funds have to convince the investors that the investments in them were better than other forms of investments including the initial public offering (IPO) markets.

The chairman of UTI, G P Gupta, said an insurance cover for the mutual fund trustee should be evolved which is in practice in the US markets. He said the UTI would launch some specialised funds like leverage funds, commodity fund and real estate funds.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.