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Ananth Narayan G, Whole Time Member, SEBI said manufacturers like fund houses, PMS and AIF companies should protect interests of investors by ensuring appropriateness and suitability of products sold by their distributors.
Narayan spoke at the Cafemutual’s first ever conference of alternates – CafeAlt Conference 2024 held on August 23 in Mumbai.
Narayan said that the ecosystem must ensure that a product or offering sold to an investor is suitable and appropriate for her, and that she fully understands the associated risks. “Given that distributors are paid by the manufactures and not by the investor, and given that distributors are in effect an extension of the manufacturer, there is a need to ensure that the investors’ best interests are protected by the manufacturer,” he said.
Highlighting the importance of educating investors about risks, Narayan said many of the new investors entering the capital markets ecosystem may not have really experienced a full market cycle. He said, “It is vitally important that risk-awareness should accompany increased participation in securities markets.”
The WTM further said that the industry should look at improving the current Risk-O-Meter framework to educate more about risks. He said, “We perhaps need to explore better ways of conveying the risk associated with a financial product, which may truly reflect the volatility (both implied as well as realised) and liquidity profile of the product.”
Throwing more light on the aspect of risks, Narayan said that 40% of all mid cap, small cap and micro cap stocks have grown by 5 times in price terms in 5 years. As a result, large inflows have come from investors into equity markets.
Narayan said that the mutual funds’ holding in mid and small cap companies has increased from around Rs.2.20 lakh crore to Rs.11.50 lakh crore. He said, “While fundamentals, macros and any other number of factors can be used to explain and justify price movements, industry experts must collectively ponder over this.”
