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Our Bureau

SEBI moots capital protection schemes

GIVING MORE LEEWAY: Mr M. Damodaran, Chairman, Securities and Exchange Board of India, speaking at the CII Mutual Fund Summit in Mumbai on Thursday. — Paul Noronha

Mumbai , June 15

The Securities and Exchange Board of India will soon come out with a slew of measures providing more leeway to the mutual funds industry. These include allowing MFs entry into real estate sector and launch of `capital protection' schemes.

SEBI would announce the guidelines for real estate mutual funds next week. Making these announcements at Mutual Fund Summit-2006, organised by CII here on Thursday, the SEBI Chairman, Mr M. Damodaran, however, cautioned mutual funds against coming up with new fund offers just for the sake of visibility.

New Fund Offers

He made it clear that SEBI would not clear applications for new fund offers if the same mutual fund had similar schemes in its portfolio. He asked the mutual fund trustees to certify the new fund offers before filing for SEBI clearance. Mutual fund industry has been waiting for SEBI guidelines on real estate mutual funds.

Industry officials said the new guidelines would probably allow mutual funds to directly invest in real estate projects and real estate specific funds. Considering the long-term nature of real estate projects, the schemes would have to be close-ended, a senior industry official explained.

Another move is to allow mutual funds to launch `capital protection schemes' that guarantee investor's capital. Details regarding this would be announced next month, Mr Damodaran said.

Assured Return

Capital protection scheme is another form of assured return scheme, which was discontinued following the collapse of UTI's US-64 scheme. The new scheme will assure protection of the capital invested in the scheme.

As a follow-on step to the announcement on investments in overseas equity by domestic mutual funds in the Finance Bill 2006-07, Mr Damodaran said that SEBI plans to come out with details on this matter shortly.

The Union Budget had hiked the limit of total investments by Indian mutual funds in overseas markets to $2 billion from the earlier $1 billion. The Budget had also removed the restriction that the funds could invest only in those foreign companies that had a minimum of 10 per cent stake in Indian listed subsidiaries.

SEBI is studying recommendations submitted by the Association of Mutual Funds of India on overseas investments by domestic funds, he said.

Mr Damodaran also warned the mutual fund industry against `mis-selling' schemes. By mis-selling schemes (such as promising `risk-free returns' to investors), the mutual fund industry would lose out on "repeat investors who will sustain the market," he said. He said that mutual funds should not only publicise new offerings but also their existing schemes.

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