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.