Single Fund Manager for Commodity & Overseas Funds: Sebi Proposal to Reduce MF Costs

New Delhi, Feb 27 (PTI) Markets regulator Sebi's proposal of allowing mutual fund houses to have a single fund manager to oversee commodity and foreign investments is aimed at reducing the cost of managing the fund, a top official of Anand Rathi Wealth said on Tuesday.

Sebi, on Friday, came out with a consultation paper proposing measures to support ease of doing business for Mutual Funds (MFs).

In the draft paper, the regulator suggested appointing a single fund manager for domestic and overseas/commodity funds, relaxation of nomination requirement for joint holders and streamlining of prudential norms for passive schemes with respect to exposure to a single issuer within the AMC's group companies.

This came after the Finance Minister in the FY24 Budget made an announcement to simplify, ease and reduce cost of compliance for participants in the financial sector through a consultative approach.

"The appointment of a single fund manager for domestic and overseas/commodity funds is intended to reduce the cost of managing the fund," Anand Rathi Wealth Ltd Deputy CEO Feroze Azeez said.

Sebi noticed that the appointment of dedicated fund managers leads to additional costs for Asset Management Companies (AMCs) in terms of employing two fund managers.

Moreover, AMCs already hire research analysts tracking assets classes such as at each sector level, irrespective of the same being a domestic or overseas investment.

Therefore, the current provision with respect to dedicated fund manager could be eased.

On proposed easing of rules on nomination front, Azeez said relaxation of nomination requirements for joint holders is beneficial as it simplifies the process of nomination by allowing the surviving member to become the nominee.

This streamlines the transmission process and reduces hassle in such situations. Later, the last surviving member can assign a nominee.

Additionally, Sebi has suggested changes to simplify rules for passive funds like Exchange-Traded Funds (ETFs) and index funds.

Currently, these funds face restrictions on investing in sponsor group companies, with a maximum cap of 25 per cent of net assets.

Additionally, no single stock in a sectoral or thematic index-based passive fund can have more than a 35 per cent weight.

Recognising that certain sectoral indices may have single issuers with over 25 per cent exposure, Sebi has suggested relaxing this limit for investments in sponsor group companies.

This adjustment allows funds to invest based on the weight of constituents in the underlying index, reducing tracking errors.

For equity-oriented ETFs and index funds based on widely tracked indices, Sebi has proposed excluding them from investment limits in sponsor group companies.

This change enables investments to align with the weight of constituents in the underlying index, helping passive funds closely mimic benchmark indices without unintended tracking errors.

"Overall, these proposed measures not only simplify regulatory requirements but also foster a conducive environment for mutual fund industry growth. Sebi's initiatives are poised to benefit both mutual fund industry stakeholders and investors alike," Azeez said.