Says new norms should be ‘lab tested’ to analyse possible impact on industry.
With the domestic mutual fund industry still struggling to come to terms with the regulatory changes that happened two years ago, PricewaterhouseCoopers (PwC), in its latest report, has said that any new regulation should first be “lab tested” to analyse its possible impact on the industry.
According to the report, new norms should be implemented in a phased manner as the general concern expressed by industry players is that too many regulations in a short span of time has made the fund industry unstable.
“The implementation of any new regulation should be phased out, so that stakeholders get time to adapt to the changes and strategise the road ahead,” says the report, which was released by Sebi chairman U K Sinha at the CII Mutual Fund Summit on Wednesday.
According to the report, as and when new regulations are introduced, there should be a formal process where these guidelines should be interpreted uniformly, so that there is ease of implementation.
The recommendations from PwC have come at a time when the Securities and Exchange Board of India (Sebi), under its new chairman U K Sinha, is already working on new guidelines for industry participants. “Regulatory changes, moreover, should be lab tested (analysing possible impact on current business model), if only to avoid diluting the focus of the industry,” says the report.
In its recommendation to the fund players, the report said asset management should be the focus area and not asset gathering. Complex mutual fund products, their benefits and risks are difficult for customers to understand. “Manufacturers need to design products keeping in mind the varying needs of the customer and with the aim of flexibility and simplicity,” added the report.
On the back of concerns that institutional customers should not be served at the cost of retail investors, the report pointed out separation of both classes of investors. “The portfolio of large institutional investors should be kept separate so that they do not impact the small investors. There should also be separate disclosures for a separate class of shares,” said the report. Sebi on Wednesday said it was working on further disclosures in this matter.
As per a paper by NCAER, the expected annual increase in the average Indian household income will be about Rs 11,000 between 2011 and 2015. “Mutual fund companies need to tap the retail investors in this segment, to garner increased volumes. Segmenting the customer base will make it easier for the industry to address the requirements of investors with efficiency,” the report said.
