SUMMARYTo boost confidence in new schemes, a few senior fund officials have suggested to Sebi that all MF houses coming out with a new fund offering
To boost confidence in new schemes, a few senior fund officials have suggested to Sebi that all MF houses coming out with a new fund offering (NFO) be made to go through an ‘incubation’ phase first, to test and built a track record in the scheme with the sponsor/AMC’s own money.
The officials have suggested that fund houses be required to put in at least R50 lakh pre-NFO and test the scheme for at least six months before throwing it open to the public. This means the scheme will run without investor money for at least six months and will be subsequently offered to investors at the prevailing net asset value at the time of the NFO. The suggestion comes at a time when Sebi is gearing up to notify its seed capital norms, which will require fund houses to put up to R50 lakh in open-ended schemes.
“It’s a process of creating a track record and credibility in the new scheme before taking it to the investors. Since the
AMC puts in its own money, it's akin to having your own ‘skin in the game’,” said a senior fund house official on condition of anonymity.
He added that the incubation requirement is, in a way, an extension of the seed capital stipulation, but will be implemented independently.
Sebi is considering the 'incubation' suggestion, said sources. An email sent to Sebi did not elicit any response.
Experts opined that pre-NFO incubation was a good way of informing distributors and investors aware about the kind of scheme they were getting into. The disadvantage of this requirement, however, was that relatively new fund houses, which don’t have enough products in their portfolio, will find it more expensive to launch new funds.
In general, experts are in favour of having some ‘skin in the game’ as it would raise the commitment of AMC promoters and boards towards investment management.
According to Sebi guidelines, the seed capital for the MF schemes may be defined as 1% of the amount raised in the NFO subject to a maximum of R50 lakh, which the sponsor/AMC would have to invest and keep invested during the lifetime of the scheme.
The seed capital would form part of the net-worth requirement and the sponsor/AMC would have to maintain this seed capital in all schemes, except closed-ended schemes. The requirement is yet to be notified.
In the year to date, fund houses have launched 28 equity NFOs and 23 debt NFOs (excluding FMPs), according to data collated from Value Research. This seems like an improvement over last year, which saw the launch of just 28 equity NFOs in the entire year and 60 debt NFOs.
Source: Financial Express
