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Asset management news: India - EY - India

Finesse: March-June 2011

Asset management: India

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Regulatory actions

Ministry of Finance28 JuneThe Finance Ministry has allowed foreign individuals to invest up to US$10 billion in domestic mutual funds. This was proposed in this year’s Budget and SEBI is expected to notify the rules pertaining to this by August 2011.i
SEBI5 AprilSince the appointment of UK Sinha as Chairman of SEBI in mid-February 2011, the mutual fund industry has been hoping for some relief from some of the strict guidelines of the regulator. UK Sinha has asked officials to explore all areas to bring the costs of AMCs without diluting prudency norms in order to safeguard the interest of investors. Furthermore, relaxations related to limits on the usage of funds or a reduction in regulatory or compliance costs are being expected.ii 
SEBI24 MarchSEBI planning to introduce a new set of regulations to curb mis-selling of mutual fund (MF) schemes by distributors. It has instructed asset management companies to follow certain due diligence practices while selling MF schemes.iii
SEBI7 MarchMutual fund companies are planning to increase their global distribution network after the Finance Minister allowed foreign investors to directly put in money into Indian equity fund schemes. Following this announcement, mutual fund companies expect at least a fifth of their sales coming from foreign retail investors in the next few years.iv 

Other important news

Industry-wide30 AprilThe number of new mutual fund distributor registrations has declined from an earlier average of 6,000–8,000 per year to just 3,000 in FY11. Ban on entry loads, introduction of new know-your-distributors (KYD) norms and hike in the fees for individual distributors by the Association of Mutual Funds in India (AMFI) are being seen as the major reasons for this.v
Industry-wide20 AprilIn 2010–11, 26 asset management companies (AMCs) conducted 5,817 investor awareness programs that covered 280 cities and 340,383 participants. During the year, AMFI had set up an Investor Awareness Committee, which devised a presentation to be used by the AMCs for their respective investor awareness
Industry-wide11 AprilWhile the official figures suggest that close to 95% of active mutual fund distributors have already complied with KYD norms, industry estimates suggest that only about half of the distributors are likely to have done so. Given that the deadline to become KYD compliant has already expired on 31 March 2011, distributors who have not yet complied are in a rush to become KYD-compliant.vii
Industry-wide14 AprilIndia's INR6 trillion mutual fund industry is focusing more on offering investors solutions to achieve their financial goals rather than just sell products. Traditionally, funds sell debt, equity and composite products; but a few have begun to offer tailored solutions to investors after understanding the latter’s financial goals.viii

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i “Foreigners allowed to invest in mutual funds,” Business Standard, 28 June 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

ii Ashish Rukhaiyar and Chandan Kishore Kant, “MFs expect more sympathy from new Sebi chairman,” Business Standard, 5 April 2011, via Dow Jones Factiva, © 2011 Business Standard Ltd.

iii “Sebi plans new rules on MF sales,” Mint, 24 March 2011 via Dow Jones Factiva, © 2011 HT Media Limited.

iv "Mutual funds to scale up global reach, eyeing assets abroad," Mint, 7 March 2011, via Dow Jones Factiva, © 2011 HT Media Limited.

v “Amfi distributor registrations down by half in FY11,” Financial Express (India), 30 April 2011, via Dow Jones Factiva, © 2011 Indian Express Pty. Ltd.

vi “MF investor awareness programme gains momentum,” Business Line (The Hindu), 20 April 2011, via Dow Jones Factiva, © 2011 The Hindu Business Line.

vii “Distributors rush to get KYD-compliant,” Mint, 11 April 2011, via Dow Jones Factiva, © 2011 HT Media Limited.

viii “Mutual funds shift focus from products to financial solutions,” Mint, 14 March 2011 via Dow Jones Factiva, © 2011 HT Media Limited.

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