Amfi concerned over Sebi's 20, 25 norm

Mutual funds (MFs) are in a quandary over the 20, 25 norm of the Securities and Exchange Board of India (Sebi) which says that a scheme should have a minimum of 20 investors and no investor should hold more than 25 per cent of the assets.

These norms are applicable at the plan level - that is each plan within a scheme should be following this norm. This is going to result by the end of this month (December 31, 2004) into a whole lot of schemes being forced to wind up and more, an outflow of funds within the range of Rs 30,000 to Rs 40,000 crore will flow out of the industry. This is because such schemes will automatically wound up and the funds repaid to the investors.

So the fund houses are lobbying with Sebi to make the norm applicable at the portfolio level - that is for the scheme as a whole. Though there still would be outflows, this would only in the region of around Rs 2,000 crore to Rs 3000 crore, industry sources said.

In fact, on Friday representatives from the Association of Mutual Funds of India (Amfi) met Sebi chairman G N Bajpai to voice their concerns. Sebi has so far not taken any view on this.

Industry sources said that the schemes which are likely to be hit are schemes where the number of investors are small. "It is also a cumbersome procedure," said the sales head of a leading mutual fund house. Funds will have to constantly monitor the levels of holding of various investors as well as monitor the number of investors.

"Where the number of investors are small, the fund management will have to keep a check that the level does not fall below the 20 investor floor," said the official.

Fixed maturity plans come under this category which operate with a small investor base.

Mutual funds have been already hit by redemptions in the last three months and a further outflow during the current month could play havoc with the industry figures.