To attract retail participation in mutual funds, SEBI (Securities and Exchange Board of India) has proposed a long-term policy. This includes tax breaks for investors, higher minimum capitalization rules and an obligation on AMCs (asset management companies) to push their schemes, according to media reports.
In 2009, SEBI banned the entry load which dried up inflows into mutual funds. As a result, in the past two-three years commercial interest of distributors has come down, and they are not motivated to sell mutual funds.
The AMCs had asked SEBI to reintroduce entry loads that would help to bring back the lost glory of the industry. But the market regulator has reiterated its opposition to such a move. According to SEBI chairman, the response has to be structural to boost revenues of fund houses. SEBI is contemplating that there should be a mutual fund policy of the government.
The market regulator is planning to introduce some short-term measure to boost the industry. These could be in the form of incentives for selling mutual fund schemes beyond the top 10 cities in the country, and disincentives to stop the phenomenon called churning or frequent switching of schemes by distributors and fund houses.
The SEBI board will be guided by broad principles and will discuss specific proposals at its upcoming meeting this month. And that policy should highlight tax treatment, investor protection measures and sales practices.