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Few will dispute that market regulator Sebi has been actively taking up the cudgels for investors. From abolishing entry loads, regulating liquid funds and FMPs to facilitating easy change of brokers - with each move, the regulator has empowered the investor. In keeping with that sentiment, we would like Sebi to make three more disclosures relating to a mutual fund mandatory.
FUND MANAGER'S INVESTMENTS:
A fund manager should be made to disclose personal investments in the fund. If a fund manager invests his personal money in funds, it is a classic case of putting one's money where the mouth is. Also, it can be a huge confidence builder for investors in the fund. Typically, most AMCs release fact sheets on a monthly basis where the portfolio is disclosed along with information like the fund's investment objective, minimum investment amount, and the fund manager's name, among others. Sebi can mandate that the fund manager's investments in the fund be disclosed by including a new data point - number of units held by the fund manager.
COMPENSATION POLICIES:
There is an undeniable link between an AMC's policies on compensation for its investment team and its investment practices. Let's take a few examples to better understand this. Say an AMC uses the performance delivered over a 12-month period to determine the bonus payouts for its equity fund managers. In effect, the compensation structure incentivises short-term investing. In such a scenario, it should not be surprising if equity managers have a short-term investment focus. Consider a scenario where the time spent by a manager on meeting distributors and helping gather assets is given significant weightage. It would be fair to assume that the AMC emphasises asset growth over investment results. Make no mistake, the AMC has every right to determine what its priorities are; but then, likewise, investors are also entitled to be aware of the same, so that they can make informed decisions. Hence, there is certainly a case for disclosing an AMC's compensation policies in the annual report.
FUND MANAGER'S COMMUNICATION:
To be fair to the AMCs, it is common to find communication from fund managers and CIOs in fact sheets and AMC websites. But often the content is far from useful. A broad commentary on markets and the macroeconomic environment that is often authored by the products team or, even worse, outsourced from third parties rarely helps. What will help investors is a forthright communication by managers on strategies used for the funds, why they made investments in the chosen stocks and sectors and how the investments played out. By doing so, AMCs and managers will move a step closer towards treating investors as stakeholders. It will also help investors better understand the funds they are invested in. This communication can be made annually, and included as a standard disclosure in the annual report.
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