At the 13th CII Mutual Fund Summit, SV Muralidhar Rao, Executive Director, SEBI said that the market regulator is planning to undertake offsite supervision of mutual funds in the immediate future.
We spoke to a few MF officials to understand what this surveillance system could mean for the industry. According to them, SEBI will track the operational practices in fund houses similar to SEBI surveillance for stock exchanges.
It is believed that SEBI will take data feed (daily transaction report, scheme performance and so on) from R&T agents, fund houses and AMFI. SEBI would generate reports on various operational aspects and ask questions if the market regulator finds any aberration.
Currently, SEBI does auditing annually to supervise the operational practices of fund houses. However, physical auditing has certain limitations such as time limit and relying on annual figures. Also, at times, SEBI has to outsource annual auditing of fund houses, say industry experts.
An operational head of large fund house told Cafemutual that under the new surveillance system, SEBI would get such data on a daily basis. He believes that SEBI will have certain algorithms and parameters to detect aberrations such as frequent churning which could lead to the distributor being queried.
Another MF official said that SEBI might look at suitability of products to find out if the scheme has been mis-sold. “There will be concern if say it is found that a 75 year old investor has high exposure to equity funds. SEBI may then take up the matter with distributors and fund houses based on such findings,” he said.
He further said that while the market regulator may overlook minor errors such as discrepancies in calculation of NAV, allotment of MF units and doing KYC, the regulator may question fund houses if a failed process is detected to be cause of investor loss.
