November 10, 2007

life in financial markets: icici prudential mutual fund's opaqueness in disclosures

There are some players in the financial world have a negative record when it comes to transparency in disclosures mandated by regulators. I came across one such instance recently.

Mutual Funds (MFs) in India have to be registered with the stock market regulator, Securities and Exchange Board of India (Sebi). Sebi regulates the MFs through specific regulations for MFs. In these regulations, Sebi requires all MFs, among other things, to disclose once every six months their unaudited half-yearly financial results.

Now, these half-yearly results include giving of notes to accounts of which one relates to disclosing investments made by any scheme of the MF in debt/equity of a company where the company is holding more than 5% of the corpus of any of the MF's scheme. For instance, if company 'A' has invested Rs 5 crore in Scheme 'X' (say, a liquid fund) that has a corpus of Rs 100 crore and if any of the MF's scheme has invested in a debt or equity instrument of company 'A' then the MF has to make two disclosures:
– name of the scheme in which company 'A' has invested (and where it holds more than 5% of the corpus), and
– names of schemes that have invested in company A's debt/equity and exact scheme-wise details like cost of investment during the six month period and the outstanding market value of the investment at the end of the period.

For the six-month period ended September 30, 2007, the MFs made their unaudited financial
statements disclosures towards the end of last month (October). I went through most of them and discovered that ICICI Prudential Mutual Fund was perhaps the only MF that was acting smart with the disclosure I described in the previous paragraph. It was not giving the name of its schemes in which the companies (like 'A' referred to in previous para) were holding more than 5% of corpus. Also, while it gave gave scheme-wise detail of the outstanding market value of the investment as on September 30 it did not give details of the cost of investments made from April 1 to September 30.

ICICI Prudential clearly is trying to hide something by not disclosing the details in their entirety. And, I think, it is the second or third largest mutual fund in India currently. Sebi, as usual, is sleeping, not interested in enforcing their own regulations on the big players in the stock market except against those where its chairman or member would have a vested agenda to do so.

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