At an industry event today, SEBI member has urged the industry to increase investor participation via direct plans by leveraging technology. Speaking at CII MF Summit 2020 in Mumbai, G Mahalingam, Whole-Time Member, SEBI said, “While I am not trying to downplay the role of distributors, technology has to play a very important role and bring in more of direct participation.”
He added that the recent regulation wherein the regulator directed stock exchange platforms like BSE Star MF and NSE NMF II to offer direct plans to investors would help in increase participation in direct plans. So far, exchange platforms used to offer direct plans only to those investing through RIAs.
Liquidity management
Talking about the recent regulations on liquidity management in debt funds, Mahalingam urged the industry to create considerable liquidity buffer.
"What SEBI has brought in now is kind off compulsory liquidity buffer which overnight funds and liquid funds need to hold. Now, this is a regulatory nudge. However, what I wish is that the industry itself operates on a cycle, which gauges the liquidity demands in a stress scenario and is able to build up the liquidity buffer," Mahalingam said.
He added that while this is going to squeeze the cost, over time, volumes would increase for the industry. In fact, SEBI envisages that the industry is going to be a volume based industry rather than a margin-based one.
Further, he highlighted the long-term vision of the regulator. “Regulation does add cost but focus of the regulator is not on the next year or even the next 5 years but next 10 or 20 years. While the cost of regulation may appear substantial now, over time, these costs could even out and the industry could absorb these costs to function well,” he said.
Credit risk fund
Commenting on the recent credit events, the SEBI member asked the industry to opt for a “more responsible” sales pitch.
“The industry needs to ask itself, how we want to sell credit risk funds. Shall we sell it by saying that it would fetch you 50 bps extra return or you also tell them about the inherent credit risk. It is the responsibility of the industry and distributors to bring clarity, so that the retail investor takes a calculated move.”
Passive fund
Mahalingam also appealed the industry to look at the cost proposition of passive funds more carefully. “Passive funds are yet to get a boost from the industry. Certainly, the cost proposition should be more attractive and I request the industry to look at it more carefully,” he said.
