While the MF industry has grown at an outstanding pace over the last few years reflecting the confidence of investors in mutual funds, there is a need to continue upholding this confidence for the benefit of the industry and the investors, said SEBI Chairman Ajay Tyagi.
Speaking at the 25th annual meeting of AMFI, Tyagi advised AMCs that they should keep the interest of investors at forefront. “Protecting the interest of investors is the primary duty of mutual funds and thus all decisions that funds take on behalf of investors should be taken keeping in mind the best interest of the investors,” he said.
Further, Tyagi asked fund houses to practice prudent risk management. He said that recent experiences have shown that there is no alternative to prudent risk management.
Cautioning fund houses on management of debt funds, he said, “The debt mutual funds must remember at all times that there is a difference between ‘investing’ and ‘lending’. Mutual funds are not banks and should not attempt to behave like one. Neither unlike banks are there capital adequacy requirements for mutual funds nor do they have the ‘lender of last resort’ comfort as banks have from RBI. The true reflection of their portfolio in its NAV on daily basis is the cornerstone of transparency and investors’ trust.”
In fact, in this regard, the Bombay High Court has recently clarified that the RBI’s circular allowing banks to grant moratorium on term loans isn’t applicable to mutual funds and debentures after a company tried seeking moratorium on NCD payments to a fund house.
Referring to the recent changes in multi cap norms, Tyagi asked fund houses to keep their scheme portfolios true to their label. He said if a scheme portfolio is not true to its label, it might be giving very different risk return exposure to the unit holders of the scheme than what they have signed up for.
SEBI norms for categorization of mutual fund schemes have two objectives – the scheme portfolio should reflect the name of the scheme; and that the scheme performance can be compared against an appropriate benchmark, he added.
Summing up, the SEBI chairman has three tips for fund houses – protect interest of investors, follow prudent risk management process and remain true to label.
