SEBI Chairman Tuhin Kanta Pandey said the regulator is considering the proposal at the annual general meeting of the Association of Mutual Funds in India (AMFI) on Friday, according to Informist. AMCs have sought a framework similar to the one already available to foreign portfolio investors (FPIs), saying it would help ease cash management requirements.
Under net settlement, an investor’s obligations from multiple buy and sell transactions are settled on a net basis rather than separately on a gross basis. For mutual funds, this could reduce the amount of liquidity they need to arrange during the trading and settlement cycle and lower their intraday funding requirements.
SEBI had allowed net settlement for FPIs in April
The proposal for mutual funds follows SEBI’s decision in April to allow FPIs to settle funds obligations with their custodians arising from outright purchases and sales in the equity cash market on a net basis.
The regulator had introduced the facility after representations from FPIs and custodians that gross settlement was creating liquidity pressures and higher funding costs. Foreign exchange slippages and other operational inefficiencies could add to the burden, particularly during periods of index rebalancing.
AMCs have sought a similar arrangement to improve their cash management and reduce the need for intraday borrowing, Informist reported.
SEBI reviewing activities permitted for AMCs
Pandey also said SEBI is examining proposals on the activities that asset management companies are permitted to undertake.
The regulator is separately reviewing the framework governing mutual fund distributors. A working group is examining ways to harmonise the regulatory overlap between mutual fund distributors and investment advisers, according to Informist.
The reviews come as the mutual fund industry has grown in scale and complexity, increasing the need for stronger governance and oversight.
“The governance and oversight standards of the mutual funds must keep pace with rapidly growing scale and complexity in the funds industry,” Pandey said, according to Informist.
SEBI stresses fiduciary responsibility
Pandey also stressed that AMCs need to maintain fiduciary responsibility across their operations, from investment decisions to investor servicing.
“For asset management companies, fiduciary responsibility must be reflected across the entire value chain–from investment decisions and valuation to distribution, disclosures, and investor servicing,” he said.
He also highlighted the role of mutual fund trustees in protecting unitholders’ interests.
“Mutual fund trustees, on the other hand, must ensure they are undertaking independent and informed supervision on behalf of unitholders,” Pandey said.