Source Business Standard
| Small debt funds under Sebi microscope |
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improving JAYSHREE PASI Mumbai, 21 April The securities market regulator is training its gun on debt schemes with low assets under management (AUM). Sources indicate the Securities and Exchange Board of India ( Sebi) could soon ask fund houses to maintain an average AUM of ₹ 20 crore for all open- ended debt- oriented schemes, on a half- yearly basis. They say it recently wrote to fund houses, asking how these schemes were meeting their investment objectives and what was being done to increase their AUM. Based on the reply from the asset management companies (AMCs) and trustees, Sebi is likely to advise fund houses to either end such schemes or merge these with existing debt schemes. " There are some openended debt schemes that have AUM of less than ₹ 1 crore. We want to reduce complexity and want fund houses to focus on schemes that maintain a minimum AUM," said a Sebi official, on condition of anonymity. An email sent to Sebi, seeking comments, remained unanswered. According to data from mutual fund ( MF) tracker Value Research, there are 84 open- ended debt schemes with an AUM of less than ₹ 20 crore, a total of ₹ 624 crore of assets. Dhirendra Kumar, chief executive officer ( CEO), says the debt space is unnecessarily complicated. "The move to consolidate it will be advantageous to both the regulator and investors. It would reduce the regulatory burden for Sebi and institutional investors will not suffer as well, as there is no dearth of schemes," he explains. A total of 12 schemes of Kotak MF have an AUM less than ₹ 20 crore. Eight schemes of Tata MF do not meet the criteria as currently envisaged by the regulator. Six schemes of ICICI Prudential will also be impacted. Dwinjendra Srivastava, head, fixed income, Sundaram MF, says these are seasonal schemes, with liquidity as the most important feature. " We will get in touch with the regulator as and when Sebi comes out with the circular, for more clarity on the issue," he said. Jimmy Patel, CEO, Quantum MF, believes this move will be detrimental to investors. " The MF industry in India is not mature enough to handle such compulsions and it might lead to malpractices," he said. The regulator's rationale is that a low AUM for a debt scheme is detrimental to investors, as it would not be able to buy in line with the market lot requirement of ₹ 5 crore. In a reply to Sebi, the fund houses have said there is already a welldeveloped odd- lot market available to meet the requirement of investors and such a compulsion to maintain a minimum AUM is not required. Sources indicate equity MFs are likely to face a similar compulsion. The regulator could mandate that equity schemes maintain a minimum AUM of ₹ 10 crore. Sources in the sector suggest fund houses are already informally maintaining a ₹ 10 crore AUM for equity schemes in anticipation. Might ask schemes with less than ₹ 20 cr to merge or close; similar condition could follow for equity schemes |
Source Business Line
Corporate top brass scrambles for cover
RADHIKA MERWIN
Looks for insurance as new companies law sets stiff penalties for fraud, mismanagement
BL RESEARCH BUREAU:
Directors and top managers are running for cover, literally. Ever since the new Companies Act kicked in, on April 1, corporate top brass has been in a hurry to insure itself against lawsuits in case it gets embroiled in allegations of fraud or mismanagement.
Directors and Officers (D&O) Liability policies, which offer cover against personal liabilities arising from the insured's corporate role, are seeing brisk business.
"We have seen a significant uptick in D&O policy sales ever since the new sections were notified in November. Companies, which have taken this policy, are increasing their cover," says Sushant Sarin, Senior Vice-President – Commercial Lines, Tata AIG General Insurance. The number of policies sold has grown by 25-30 per cent this year, and after the notification of the new Companies Act, this number is only going to go up, he adds.
Rising risk
The new company law sets stiff penalties for auditors, directors and top managers if the company they work for is accused of fraud or mismanagement. "Penalties, which were in hundreds and thousands of rupees, now run into lakhs," says Jamil Khatri, Global Head of Accounting Advisory Services, KPMG.
While a D&O policy does not offer directors/officers cover against fraud committed by them, it covers them against damages and costs arising out of legal action owing to errors, omissions or negligence in performing their managerial duties. Key managers and companies are buying these policies, as the latter too can face legal action by shareholders/employees.
"The Satyam case was really the inflection point for these policies. But, yes, there is now much greater interest.
"We see big potential in D&O," says Amarnath Ananthanarayanan, CEO of Bharti AXA General Insurance.
Class-action suits
Companies are really worried with the provision that allows shareholders to file class-action suits. "Some of the largest claims under the D&O policy outside India have originated from class-action suits. This is thus one of the most significant risk areas where the D&O policy may come into action," says Sanjay Datta, Chief – Underwriting and Claims, ICICI Lombard General Insurance. About 5,000 such policies are in force today.
Big takers
So, which companies are off the block? Sarin says listed companies, particularly from new age sectors such as IT, entertainment, communications and biotech, opt for a higher cover as their stock price is more volatile than, say, a manufacturing company.
"In case of related party transactions, the audit committee will now need to make an assessment whether they are at an arm's length basis and in the ordinary course of business.
"Thus, companies with complex structures, multiple businesses, operating from many locations. and conglomerates may focus more on D&O insurance," says Khatri. The sum assured on such policies starts from ₹1 crore going up to ₹500 crore. Premiums vary from ₹50,000 to ₹l lakh for the minimum cover to about ₹2-3 crore for larger policies. "While limits vary from industry to industry, companies tend to take 10-20 per cent of their turnover as cover. The base (premium) rate comes to around 0.2 per cent, and again it depends on the kind of risk and industry," says Datta.
(This article was published on April 21, 2014)
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