SEBI seeks more powers

By Our Special Correspondent

MUMBAI, NOV. 6. The Securities and Exchange Board of India (SEBI) would consider a proposal by Mr. Y. H. Malegam to apply capital adequacy norms to mutual funds.

Speaking at a seminar on `Mutual Funds - Structural Evaluation,' organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here today Mr. D. R. Mehta, SEBI Chairman, said it would consider implementation of Mr. Malegam's recommendation that the capital of asset management companies (AMCs) of mutual funds should be linked to the value of the assets under their management. Mr. Malegam, a leading chartered accountant, who delivered the key-note address, said AMCs should have a minimum capital of 2 per cent of the asset under their control.

Mr. Mehta, who inaugurated the conference, welcomed the recommendation and said, ``It is a good suggestion and we would consider it". According to Mr. Mehta, the capital of an asset management company should have some relation to the value of assets under its control. As per SEBI norms, the minimum capital required by an asset management company now is Rs. 10 crores.

Mr. Mehta reiterated that SEBI should be given sufficient powers to regulate the market and punish the guilty. Further he added that worldwide, there was only a single nodal agency to regulate the markets but in India there were almost 11 different agencies involved which dilutes the effectiveness of the regulator. The SEBI is held for bearish market conditions and also criticised for its alleged non-performance, ``but how do you expect us to perform in the absence of adequate powers," he asserted.

On Indian companies Mr. Mehta said they should raise the quality of their disclosures and ``instead of accusing the regulator, they should work towards improving their performance and gain investors confidence." Regarding volatility of price movements, in the secondary markets Mr. Mehta emphasised that this was a reflection of the state of the economy and SEBI had little role to play in this. He also said that demutualisation of stock exchanges has been taken up and would be completed in due course.

Mr. Malegam, Managing Partner, S. B. Billimoria & Co., said increased inflow to the income funds was due to certain artificial props given to them as result of which large investments were flowing in this segment. He further said that as soon as these props were withdrawn there would be a flight of funds from this segment leading to ULIP like situation.

Regarding distribution of capital in the form of dividend to investors by mutual funds, Mr. Malegam said the diminution of investments need not be considered as long as this factor had been taken into account while calculating the net asset value (NAV), which could lead to popularity of mutual funds.

About Unit Trust of India, Mr. Malegam said it had a tremendous ``brand equity," this could perhaps be encashed by transferring some part to the strategic investors.

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Section  : Business
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