A mutual fund pools assets and invests on behalf of investors having common objectives and similar risk profile. Therefore, it becomes a fiduciary responsibility of fund managers to be fair to all investors. Mutual trust is the essence of relationship between an investor and the asset management company. If wellbeing of investors is compromised anywhere, market regulator ticks off fund houses for their misdeeds. Considering comments recently made by the chief of Securities and Exchange Board of India (SEBI), Mr U.K. Sinha, it seems that mutual funds houses have taken investors for granted and have shown little concern for them.

What SEBI Chief has to say?

Speaking at the mutual fund summit of Confederation of Indian Industry (CII), SEBI chief expressed a few concerns. They ranged from noncompliance of mutual funds to role of distributors in development of mutual fund industry.

And the issues are...

He brought to the notice of the industry that, the regulator is well aware of malpractices followed by a few fund houses while performing inter-scheme transfers. It seems that, some fund houses are not complying with the valuation norms set by SEBI. Inter scheme transfers often happen when a scheme faces liquidity issues while honouring redemption requests. In such a case, it transfers illiquid assets to other schemes. This happens especially in case of bond funds; where offloading bonds in the open market becomes little tough for a number of reasons.
 

Off-market transactions on a rise...

(Data as on July 06, 2015)
(Source: Business Standard dated, PersonalFN Research)  

Table given above shows that, inter-scheme transactions by mutual funds have steeply increased from Financial Year (FY) 2012-13 onwards. As against Rs 64,500 crore in FY14, inter-scheme transactions went up to 70,701 crore in FY15. Although there is not much a problem with transfers per say, there is definitely a problem when valuation guidelines are disregarded and assets are transferred.

The regulator also warned fund houses against the practice of charging investors wrongly. It has been observed that, flaunting the norms, a few fund houses are investing in fixed deposits with maturity of more than 91 days. Moreover, going against the rules, they are charging investors for such investments.

SEBI cracked down heavily on fund houses for not being serious about investor meets. As per SEBI data only about 18% meeting are genuinely conducted for investors. Mr Sinha also advised mutual fund houses to keep commissions paid to distributors under manageable limits. He also pointed out that, there are only 295 registered advisors and it’s a concern since SEBI doesn’t want distributors to advise investors on mutual funds.

What to expect?
Comments made by the SEBI chief at the event are justified considering lack of concern shown by a few mutual funds to several issues pertaining to the wellbeing of investors. Considering that SEBI chief reprimanded mutual fund houses for their negligence in complying with regulatory requirements, there may be improvement in the way mutual funds carry out their business. It is expected that, mutual funds won’t breach trust of investors and work in their interest. PersonalFN believes mutual funds must assume greater responsibility while managing money on behalf of investors.

PersonalFN is of the view that, pace of expansion and development of mutual fund industry in India largely depends on how well investors are educated about their finances. PersonalFN has imitated several investors’ education programmes at various platforms to educate investors.

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