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Mutual funds upset by SEBI noose on sops

business Updated: Apr 26, 2010 23:09 IST
HT Correspondent

Mutual funds are miffed by the stock market regulator's attempt to tighten its noose around foreign trips and other incentives they spend on to build their distributor networks. They say the amount involved is too small, and what they are doing is only normal business practice across sectors.

Indications from the industry suggest that large mutual funds may suffer, if the regulator gets cracking on the issue. There is also an unanswered question: is the money for such incentives coming out of the invested funds?

The Securities and Exchange Board of India has got asset management companies worried after an official of the regulator was reported as saying that SEBI was frowning on cash payouts and junkets aimed at boosting sales.

"It is a normal practice across all sectors like pharmaceuticals, automobiles, consumer durables and telecommunications to build a channel and only a petty amount goes into this," said the head of a large fund house.

However, the industry is divided.

"As an industry our job is to get investors and I think there is an ethical issue rather than a monetary issue involved in taking distributors abroad and asking them to sell products. SEBI is trying to question this," said T P Raman, MD, Sundaram BNP Paribas Mutual Fund.

Industry officials say the regulator must have been alerted by a number of foreign trips offered to distributors.

"The regulator's actions are completely focussed towards the investor," said a fund house official, defending SEBI.

Fund houses agree stringent regulatory action may affect their business — with a lot dep-ending on how much they plan to invest in building channels.

"It is generally the big fund houses that do such activities and it will impact only them if a guideline on the same comes in place," said the head of a medium-sized mutual fund.

A mutual fund expert said junkets were linked to distributors' performance in a period and not an expense account.

"Between the fund account and the expense account there are so many conduits that flow either way It is tough to figure out where the money is coming from," said an industry insider on condition of anonymity.