Monday July 14, 02:21 AM
Revisit MF norms: CII-PwC
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By ENS Economic Bureau
In order to adopt best global practices such as outsourcing accounting and compliance, there's an urgent need for re-considering the net worth criteria set for obtaining a mutual fund license and the cap on expenses that can be charged to a scheme, and bridging the demand and supply gap of human assets, said a report. According to a Confederation of Indian Industry (CII) and PriceWaterHouseCoopers (PwC) report on the "Indian Mutual Fund Industry: Sustaining Growth in a Maturing Market", with more and more players entering the industry, the number of service providers in the country offering fund accounting services is likely to increase. As competition intensifies, the fee rates would definitely drop, which would then be tempting for fund houses to seriously consider outsourcing. Further, with the advancement of technology, some of these functions could be moved to locations where operating costs are comparatively lower and the benefit of which could be passed on to investment management companies, it said. With the high cost of operations in the initial years and a relatively longer gestation period, there is a case for re-considering Rs 10 crore net worth criteria set from the present Rs 2 crore for obtaining a mutual fund license, it said. This would ensure that only major and serious players who are committed to the mutual fund industry and are capable of sustaining over the long term would be able to operate in the industry. "As we move from a maturing industry to a matured industry, there is also a case for re-consideration of cap on the maximum amount of expenses that can be charged to a scheme," it said. The report also highlighted the industry's challenges for the future. One of the biggest challenges for existing as well as new players is the mounting costs of operations in India. Lease rentals and staff costs contribute the bulk of operating costs of most companies. Raising the bar •High operating costs and a long gestation period mean there is a case for a Rs 10-crore net worth criterion for obtaining an MF licence •Some functions of MFs could be outsourced and the benefit could be passed on to investment management companies, says the report •Educating the investor is a major challenge for mutual fund houses, in terms of investment as well as the technology involved
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