Recovery uncertain

Another problem with Sebi’s commendable but flawed move to disgorge ill-gotten wealth is its multiple ‘interim’ orders. In a country where courts are niggardly about granting compensation even when a decade of litigation leads to a final order, the Rs 116 crore ‘disgorgement’ without a clear plan for its distribution is hasty and bound to be challenged. Sebi further says that the disgorgement order will lapse if any intermediary is “held to be not guilty in the final order”; this suggests that it does not expect to collect or distribute the disgorged money in the foreseeable future. Also, contrary to some expert views, returning the money to rightful claimants is extremely difficult. When the basis of allotment is drawn afresh after eliminating multiple applications, there will be complete confusion at the ‘minimum allotment’ level, since this is not on proportionate basis; in fact a completely different set of successful applicants could emerge. Sebi would then have to go for an equitable, rather than a fair redistribution of disgorged wealth; but that would only happen after a lot of time and money has been spent on avoidable litigation and when the disgorgement has little meaning left.

Drumming up subscription

Last week, Reliance Mutual Fund (RMF) sent out text messages pointing to the fact that its schemes figured among the world’s best performing funds. This is praiseworthy, but not surprising; after all India has been among the best performing markets on a global basis. But RMF wasn’t writing to boast. Its marketing team told distributors that although the Fund House collected over Rs 5,000 crore during its last new fund offering (NFO), it planned to cut off subscriptions at Rs 1,000 crore for the Reliance Long Term Equity Fund which is now open for subscription. Naturally, this has distributors in a tizzy trying to get high networth investors to write their cheques; they are also pleading with the fund to accept more money. The situation is reminiscent of the Morgan Stanley issue of 1994, which saw an astonishing grey market and snaking queues to subscribe. Then too, the capital market was similarly on fire and gripped by an IPO mania. The performance of Reliance’s existing schemes was bound to attract investors to its NFO, so one wonders about the marketing over-drive that is whipping up a needless frenzy.

... contd.