Nov 20, 1999|
AMFI recommends steps to ensure more transparency
The Association of Mutual Funds of India (AMFI) has recommended that mutual funds (MFs) disclose their portfolios more frequently. This was reported by a leading financial daily.
AMFI has recommended that MFs disclose 100% of their portfolios annually and 80% of their portfolios on a semi-annual basis. Currently, MFs disclose their portfolios annually in line with the Securities and Exchange Board of India (SEBI) guidelines.
AMFI has also recommended that MFs disclose the non-performing assets (NPAs) and provide for them. AMFI has recommended that a debt instrument on which income is not received within a quarter of its due date should be treated as NPA.
Demand for more frequent portfolio disclosures is a move in the right direction. Surprising as it may seem, there are a large number of MFs (mostly in the public sector) who refuse to disclose their portfolios more than once a year, and that too only because it is mandatory. But not all public MFs fall under this category. Some like State Bank of India (SBI) MF disclose their portfolios (of open-ended schemes) on a monthly basis, just like their private sector counterparts. Some others like Canara Bank disclose their portfolios on a quarterly basis.
By and large, private MFs are more transparent and disclose their portfolios on a monthly basis. Some like DSP Merrill Lynch MF disclose portfolios on a quarterly basis.
MFs must ensure greater transparency in their portfolios disclosures. Investors would like to know where there money is going, and they would like to see the duds and the stars in the portfolio. For instance, during the recent boom in software, pharma and consumer products, there is no way for a MF investor to know whether his MF has invested in these stocks, unless the MF reveals the portfolio frequently. This lack of information acts as a constraint, and does not allow the MF investor to make an investment decision. An annual portfolio disclosure is unthinkable in a mature MF market like the US, where portfolios are disclosed very frequently.
A case in point is Morgan Stanley. When Morgan Stanley's portfolio was eroded in 1993 after the stock market scam, investors in the fund were caught in a jam. This is only because they had no idea about the number of duds (MS Shoes) in Morgan Stanley's portfolio. If discerning investors were aware of these stocks, they might have exited Morgan Stanley long before the scam.
Even the NPA disclosure norms suggested by AMFI will improve the credibility of MFs. But like all other recommendations it remains to be seen how diligently it will be implemented. Some MFs with large NPAs in their books will no doubt oppose such a move, and as always the investor will be the loser.
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