New Sebi norms to hit MF payouts

CHANGE OF PLAN

Mumbai: The spate of dividend payouts in mutual funds could come down substantially. Late on Monday, market regulator Sebi made a number of changes relating to the mutual fund industry, including one that will change the way fund accounting is currently done. In addition, Sebi, said that fund houses should play even more proactive role in corporate governance of listed companies. 

    Through its circular, the market regulator also plugged the loophole that allowed for higher management fees in funds that are sold without any load to investors. Sebi also addressed some discrepancies relating to fund of funds, and how investments are made from an Indian fund (called the feeder fund) into a global fund (mother fund). 
    Sebi said that from now on, all dividend payments should be done from realised gains of an scheme and not from the unit premium reserve (UPR). It means if an investor comes into a scheme (of Rs 10 unit price) at an NAV of say Rs 50, Rs 10 from this goes towards unit price of the scheme and Rs 40 towards UPR. 
    A number of schemes were paying substantial dividend from the UPR and attracted more investors. The Sebi order now stipulates that dividend could be paid only from the profit (surplus) generated by investing, and not from UPR. 
    Top MF industry officials said this change in accounting treatment will substantially reduce the dividend paying ability of funds. 
    The Sebi circular also said that mutual funds should now play an active role in ensuring better corporate governance of listed companies and proposed several disclosure standards for the fund houses. 
    "Some of the fund houses have demonstrated that they can take up matters relating to corporate governance with companies in which they have invested and even opposed various issues," said Rajiv Anand, MD, Axis Mutual Fund. Industry feels Sebi move is a result of such investor activism.

Inflation nears 10% to touch 16-mth high

Rate Hike Looks Certain To Control Prices

New Delhi: Overall inflation spiked to a 16-month high level at 9.89% in February to sight the double-digit mark on the back of rising food prices and an increase in the excise duty on motor fuels announced in the Budget. The latest figure marked a 1.34 percentagepoints rise over 8.56% in January and gave rise to expectations of the RBI signalling higher interest rates in its policy review in April. 

    But the government played down the rise in wholesale price based-index, with finance minister Pranab Mukherjee saying pressure on food prices was easing. "I am afraid that we will have to deal with it (high inflation) for some more time. Inflationary pressure on food items have started coming down,'' he told reporters. 
    Government's chief economic adviser Kaushik Basu, too, expected another month of same level of inflation "because the base effect is going to be very strong... After that inflation should begin to die down... The food index in January-February has virtually been constant...in fact fallen a little bit so the food price index is driven by base effect." 
    Food inflation was pegged at 17.81% towards the end of February. Sugar prices rose by 55.47% in February year-onyear, potatoes by 30% and pulses by 35.58%. 
    Global financial services firms such as Goldman Sachs, Citi and Nomura saw inflation topping 10% in March as the full impact of the excise hike on motor fuels and partial rollback of stimulus is felt. 
    Goldman expects RBI to begin withdrawing liquidity through the cash reserve ratio of banks — the amount that banks keep with the central bank — and to hike rates by 50 basis points by the April 20 policy meeting. The RBI in its quarterly monetary review had asked banks to keep aside more cash with it by raising CRR by 75 basis points to 5.75%. 
    In February, the index for fuels has shot up by over 10% y-o-y in the latest WPI, mainly on account of higher prices of petrol and diesel. While petrol became dearer by 11.73%, diesel rose 8.85%.