New Delhi: SEBI decision to encourage mutual funds to penetrate into smaller cities is certainly a welcome move, even though it would not fully alleviate the problems of the ailing mutual fund industry, ASSOCHAM said today.

The market regulator, ASSOCHAM said, has good intentions of roping in the rural and semi-urban investors into the capital market.  However, it would take a lot of time, effort and expenses for the MFs to go deep into the hinterland and raise resources.

“This would be difficult especially at a time when MF industry is virtually bleeding,” said ASSOCHAM President Rajkumar Dhoot.

In its decision yesterday, the Securities and Exchange Board of India, has allowed the MFs to charge an additional 50 basis points as total expense ratio, increasing the permissible limit to three per cent. It also allowed them to have fungibility on the expense ratio for cost effectiveness.  At present, the maximum total expense ratio is 2.5 per cent on equity products and 2.25 per cent on debt funds. The average, thus, is 1.95 per cent.

 According to SEBI, this has been done “to improve the geographical reach of the mutual funds and bring in money from smaller towns.”

While the intention is quite good, it is at best a good first move and more needs to be done for reviving the fortunes of the market.

“Many wrongfully perceive the capital market as a place for notional gains or losses. Well, that could be so in the past. Not today, when 100s of billions of dollars move in a matter of few days from one destination in the international markets to the other. It has severe implications on the business sentiment, capacity of the industry to raise equity resources and on the currency stability,” Mr Dhoot said.

He said the rupee depreciation in the past few months was more or less moving in direct proportion to the fortunes of the stock market. The stock market also has implications for the country’s foreign exchange reserves. This is more for India where “we are dependent on critical imports like crude oil.” he said.

Overall, the SEBI decisions including those relating to IPOs through electronics means and giving assured allocation of shares to the retail investors are a welcome move and would boost the market, the ASSOCHAM said.