Opinion
Mint Quick Edit | Are mutual fund houses over-regulated?
Summary
- Sebi’s review of the tight rules that asset management companies must follow is welcome. Conflicts of interest must be held in check, but they also need some space to diversify their revenue streams.
The Securities and Exchange Board of India (Sebi) is currently reviewing restrictions on the business activities that mutual fund houses can pursue. “We are doing a significant review of Regulation 24," executive director Manoj Kumar said.
Also Read: GN Bajpai: Sebi should review market infrastructure institutions
As things stand, asset management companies (AMCs) can’t undertake activities in conflict with their core business of managing mutual funds, they need Sebi’s approval to offer foreign funds consultancy services and they must maintain hard walls between distinct accounts.
Also Read: M. Damodaran: Sebi’s regulatory approach should reassure the market
The broad aim of these regulations is apparently to minimize the scope for AMCs to prioritize their own interests over those of the investors whose money they manage in case of trade-offs. But the rules also constrain AMCs from diversifying their sources of revenue to other areas of expertise.
Also Read: Sebi’s new approach to keeping markets under watch should help reduce distortions
Some of the current framework does look overdone and it may be time for a new balance to be struck. Maybe mandatory disclosures can be enhanced so that investors can decide for themselves how comfortable they are with their AMCs’ new pursuits. In general, we should err on the side of more freedom for businesses. As for risks, investors know these come with the turf.
