NEW DELHI: The Centre has appointed the Asian Development Bank to promote the growth of the mutual funds industry. An ADB team has already held consultations with senior finance ministry officials in this regard.
ADB will provide assistance in three major areas — corporate governance, regulation and supervision, and incentive structure — of the mutual funds industry. The bank will engage international and domestic business consultants to study the Indian market.
According to sources, the ADB assistance is aimed at increasing good governance in mutual funds operations, including the establishment of appropriate checks and balances, disclosure and reporting for mutual funds offering, valuation methods, and performance measurement.
Regarding the regulatory framework, sources added that technical assistance by the bank will help in strengthening regulations as well as the enforcement and investigative capabilities of the Securities and Exchange Board of India.
ADB will also recommend incentives and other necessary supportive facilities to promote the growth of the mutual funds business. The bank will review deficiencies in the current practices.
With respect to governance, sources said, ADB is expected to define appropriate disclosure standards and investment policies. It will also recommend appropriate fund pricing, valuation methods, and performance benchmarks, strengthen due diligence, internal audit, and risk management practices.
Sources said the report is aimed at helping the regulator in introducing regulations which deter malpractice’s by fund managers. According to JPC report submitted recently, some of the fund managers were not found up to the mark in regards to their due diligence effort before investing in various companies.
The ADB report is also likely to focus in the AMC’s giving various assured return schemes. Long before the current crisis took place in UTI, a committee to examine the functioning of UTI had pointed out that it is assured return schemes of the trust which might become a major problem in future.
The report is likely to suggest changes in the current regulations in regards to launching of any assured return schemes both by the public and private sector funds. The part of the report is will gain significance in light of the fact that recently submitted report of JPC which had pointed fingers at IDBI for allowing UTI to float assured returns schemes. While the initial feed back will start coming with in two weeks, the final report is expected to be submitted to government in July 2003.
