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SEBI to release guidelines for real estate funds

Aiming to provide more investment options for MFs, SEBI will come out with guidelines for real estate MFs next week.

india Updated: Jun 15, 2006 18:07 IST

Aiming to provide more investment options for mutual funds, market regulator SEBI will come out with guidelines for real estate mutual funds next week and those for gold exchange traded funds in a month.

The capital protection schemes have to communicate to the investors the nature of protection existing in the schemes, which will also be ready by next month, Sebi Chairman M Damodaran said on Thursday in Mumbai.

Laying strong emphasis on investor protection, the SEBI chief said henceforth Trustees of Mutual Funds will be vested with greater powers.

"They will have to exercise greater due diligence and ensure that new schemes launched by MF players are not a replica of existing ones."

Henceforth, the Trustees will have to certify that any new scheme launched by a fund house was different from its existing ones. "Only then will SEBI permit the scheme," he said.

About the plethora of New Fund Offers (50-plus) that hit the market last fiscal, Damodaran wondered whether all of them were new or had features already existing in earlier ones. "In some cases, only the names of the scheme were changed but the features remained the same," he pointed out.

Emphasising the need to educate investors, the SEBI chief said that he had never seen any fund house advertising or spending money to promote its older and existing funds, even though they had an excellent track-record. Instead, they were trying to sell their new products, a practice which should be discouraged, he said.

Calling upon fund houses to take retail investors into confidence about their scheme and highlight the fact that investments in MFs were essentially for the long-term, Damodaran said in the present scenario when the equity markets were spiraling southwards, fund houses should communicate to the investors not to panic but to stay invested as the economic fundamentals are still strong.

While incidences of mis-selling in the industry have substantially reduced, they have not been eliminated entirely, he said.

Warning MF players that unethical practices would not be tolerated, Damodaran cited an instance where a player had initially declared a 2.25 per cent entry load but later rounded it off to 2.30. SEBI has already demanded an explanation from the fund house and if found guilty, the money would have to be refunded to investors, he said.

In the last six months, MFs had emerged as a balancing factor in the equity markets along with the FIIs and he expected the Indian markets to be driven by domestic funds.