Should Mutual Fund Investors Worry About Hindenburg Research Report Allegations

However, what is surprising is that these allegations come months after the capital market regulator served a show cause notice to Hindenburg Research for a variety of violations in India. Instead of responding to the show cause notice, Hindenburg has attempted to level allegations against the SEBI Chief and her husband as well as chosen to attack the creditability of India's capital market regulator.

As a rejoinder to the allegations made by Hindenburg Research on August 10, 2024, SEBI Chief and her husband in their personal capacity immediately issued a joint statement on August 11, 2024, produced herein below:

The SEBI Chief has made complete and timely disclosures to the government, plus recused herself when investigating a regulated entity where she or her husband had a direct or indirect interest.

So, truly it appears to be a character assassination attempt by Hindenburg Research and question the credibility of India's capital market regulator baselessly instead of replying point to point on the show cause notice served. It is sensationalism and nothing else.

How Have the Markets Reacted to Short Seller's Report?

The Indian equity markets are exuding confidence in the growth prospects of the Indian economy and the earnings of companies. There isn't any remarkable fall as a consequence of the latest Hindenburg report.

In fact, the joint statement issued by the SEBI chief and her husband has cleared much of the air and many capital market veterans as well as the Association of Mutual Funds in India (AMFI) are backing the SEBI Chief and has complete confidence in India's capital market regulator, as an independent body.

AMFI in a statement said, that investors and partners, both in the domestic and international market, must be rest assured that India's financial system and transparent.

Here's what AMFI articulated in its statement:

"Recent external comments on the regulator's chairperson not only attempt to undermine Madhabi Buch's contribution to the Indian capital market, but it also undermines our country's economic progress, and creating a trust deficit in the market ecosystem must be seen for what they truly are - attempts to create sensation by connecting random events done in the past.

Left unchecked it can create unnecessary hurdles in the path of the world's fastest-growing economy. These statements (by Hindenburg Research), lacking in context and understanding of our regulatory environment, seek to malign the hard-earned achievements of our nation. Such advances must be viewed as creating hurdles in India's endeavour to become a developed nation.

India's future is bright, and our market structure is strong. We encourage our stakeholders to remain confident and continue to be a part of this extraordinary growth story.

"Over a period, the regulator has created a well-functioning market trusted by both local and global investors with several measures taken under the current leadership of SEBI chairperson."

Here's what Former Chief Vigilance Commissioner, Pradeep Kumar had to say speaking to The Indian Express:

"The SEBI is an independent market regulatory body and the CVC has a limited role in its supervision, if at all. There is certainly no superintendence of the CVC over the SEBI, say, as it has over the CBI and the ED."

Meanwhile, the Adani Group has rubbished Hindenburg's new report in an exchange filing, saying:

"The latest allegations by Hindenburg are malicious, mischievous and manipulative selections of publicly available information to arrive at pre-determined conclusions for personal profiteering with wanton disregard for facts and the law. We completely reject these allegations against the Adani Group which are a recycling of discredited claims that have been thoroughly investigated, proven to be baseless and already dismissed by the Hon'ble Supreme Court in January 2024.

It is reiterated that our overseas holding structure is fully transparent, with all relevant details disclosed regularly in numerous public documents. Furthermore, Anil Ahuja was a nominee director of 3i investment fund in Adani Power (2007-2008) and, later, a director of Adani Enterprises until 2017,"

What Should Investors in Mutual Funds Do?

Your investment success hinges on the care you take to select mutual funds. Among the various technical factors that go into selecting a mutual fund scheme, portfolio characteristics are an important one. If the underlying portfolio of the scheme is worthy, with prudent hygiene checks followed by the fund manager to add to stocks in the portfolio, the fund house follows processes & systems, and the fund manager does a fine job in managing the scheme, it shall reflect in scheme's performance. Watch this video to learn how to select mutual funds:

Apart from the technical factors to look at when making a choice of mutual fund scheme for your portfolio, at PersonalFN, we have always encouraged investors to also pay heed to your personal risk profile, broader investment objective, the financial goals you are addressing, and the time in hand before the envisioned financial goal/s befall. This will not only enable you to own some of the best mutual fund schemes out there but even suitable ones for you. We encourage holding a diversified portfolio of the best mutual funds.

When it comes to equity investing, well-managed actively managed schemes make more sense over passively managed Index Funds and Exchange Traded Funds. This is because active funds have the flexibility to add or remove a particular stock/sector depending on the outlook. Moreover, actively managed schemes restrict top allocation in individual stocks to 10%, thereby avoiding the concentration risk.

Avoid panicking and selling mutual funds based on sensational news. If you are not confident about the potential of mutual fund schemes in your portfolio, seek the services of a SEBI-registered investment adviser and do a mutual fund portfolio review. A portfolio review shall...

• Avoid portfolio overlap

• Maintain a strategic asset allocation to equity, debt, and gold

• Mitigate the concentration risk by diversifying effectively across asset classes and market cap

• Ensure your investments align with your financial goals

• And eliminate the underperforming assets that cause low portfolio returns

Invest sensibly. Be a thoughtful investor.

Happy Investing!

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.