PWC report on mutual fund seeks removal of cap on expenses

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Mumbai, Jun 18 (UNI) A report on sustaining the growth of Indian Mutual Fund industry, in a maturing market today, sought the Securities and Exchange Board of India (SEBI) remove regulations, on capping maximum expenditure that can be charged to a scheme.

The report, carried out by PriceWaterhouseCoopers (PWC), released at the fourth CII Summit on Mutual Fund here today, by SEBI Chairman C B Bhave said, as the industry was emerging a matured one, there is a case for reconsideration of such a cap. ''Free market principle would drive away any apprehensions that one may have about excess expenses being loaded on to the schemes,'' the report said, adding that similar investment based products sold by insurance companies did not have any limitation.

The report also sought SEBI to waive off all entry and exit loads and brokerage/distribution expenses, on schemes and wanted investors to directly pay for the services they had availed. This would result in better accountability for the advice received by the clients. The onus would be then on the mutual funds to provide well researched performance based advice to their clients, which would not be driven by the lure of a higher brokerage.

It said the free market principle would play an important role, in distribution business as well and fees charged by distributors would be competitive and driven by performance. This would led to a level playing field among the fund houses, whereby, the biggest contributor to the increase in assets under management would be their core function of managing money well.

The report described the recent hike by SEBI on the networth requirements for portfolio managers from Rs 50 lakhs to Rs two crore, as a positive development. Licenses would now be granted only to serious players, who were committed for the long haul. At the same time it said there was a case for reconsideration of Rs 10 crore net worth criteria, set for obtaining a mutual fund licence, due to high cost of operations in the initial years and a relatively longer gestation period. This would ensure that only major players, who were committed to the industry and were capable of sustaining over the long term, would be able to operate in the industry.

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