Sebi for stricter entry rules for MFs

Market regulator Sebi will look at increasing the net-worth needed for a firm to operate as an asset management company. That's one of the recommendations thrown up at the meeting of Sebi's Mutual Fund Advisory Committee headed by Sebi Chairman CB Bhave. CNBC-TV18's Vandana Vats reports.

The heavy redemption pressure seen by the mutual fund industry during the October crisis has put the market regulator on guard. We have learnt that Sebi may go in for an upward revision in net-worth requirement for asset management companies. Sources say the requirement may be hiked to Rs 50 crore from Rs 10 crore.

The regulator also wants multiple agencies for valuation of non-traded debt securities, a role currently being played by Crisil. The Sebi MF Panel also wants money-market mutual fund schemes to be valued realistically and wants the valuation based on the day's net-asset value (NAV) instead of the historical NAV.

The panel also discussed a few other issues like sectoral caps for mutual funds - it has been noted that some MFs have invested as much as much as 74%–97% in the banking, financial services industry (BFSI). The panel felt that such a huge exposure could be risky for the mutual funds.

The issue of the mismatch between indicative yield and actual yield of fixed maturity plans (FMPs) was also discussed. The panel also felt that there is a need for transparency in the transaction of MFs. It feels the distribution commission which is deducted from total investments from MFs should be taken as a separate cheque from the investors. However, no decision on any of these issues has been taken yet.