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India's Third Giant Leap

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Fund house, not Investors to pay fees
Fri, 9 Apr Pre-Open

The Securities and Exchange Board of India (SEBI), India's stock market regulator, has come up with a slew of new rules recently. It has recently tightened disclosure norms. It has also reduced the listing timeline for IPOs. As if that was not enough, it has now asked mutual fund houses to bear the upfront commissions from asset management company (AMC) reserves and not from scheme expenses. As a result, upfront fees are likely to fall from 1% to 2% currently to almost 0.1% to 0.25%.

It may be noted that AMCs can charge up to 2.25 % as scheme expenses. Some of them charge 1.75% to 2% and use the balance for pay upfront commissions to distributors. Now, they would have to pay upfront commissions from AMC reserves. In our view, this move will be lead to lower commissions for distributors. For investors, there will be money in the scheme account as a result of which their net asset values (NAVs) will go up.

Interestingly, SEBI has recently tightened the role of mutual funds in governance of listed companies. It has asked them to disclose the actual exercise of their proxy votes in the general meetings of investee companies with respect to changes in capital structure in the company and stock option plans. Quite clearly, the stock market regulator is looking at all aspects of the Indian investment industry and making it more investor friendly. More plans for highway construction

There seems to be a steady flow of announcements when it comes to construction of highways in India. As per a leading business daily, the government has approved highway construction works worth over Rs 44 bn in various states, including Bihar and Rajasthan. Two sections of the national highway (NH) 14 in Rajasthan will be converted into four lanes at a cost of Rs 24 bn. A stretch of NH 30 in Bihar will also be four-laned at a cost of Rs 6 bn. A Rs 7 bn improvement project will be done in Haryana. Besides, approvals have been given for construction of 28 roads in the North East at a cost of Rs 69 bn. In our view, plans for adding to India's road infrastructure are always welcome. The problem lies in execution which is often mired in red tape and land acquisition issues.

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