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SEBI Whole Time Member, Ananth Narayan G said that the MF industry should utilise investor awareness corpus to create risk awareness among investors.
Ananth advised AMFI to judiciously use the 1 bps by educating investors about risk associated with mutual fund investments. He was speaking at the 16th ICC Mutual Fund Summit in Kolkata.
Applauding the industry, Ananth said that the MF industry has witnessed tremendous growth over the last five years – the total investor count went up from 2 crore in 2019 to 5.10 crore recently, the industry received average fresh inflows of Rs.2.50 lakh crore every year for the last 5 years and the AUM increased from Rs.23 lakh crore to Rs.67 lakh crore. He said that the MF industry can sustain this growth through better transparency on risks.
The SEBI WTM said that the industry is good at explaining returns but it doesn’t explain the risk element to people. He said that risk and returns are two separate elements.
Ananth gave three simple yet effective ways to create awareness about risks:
Use data points to make risk awareness: SEBI has come out with two studies in which it was found that nine out of 10 investors lose money in option trading while 71% of the total individuals who did intraday trading in direct equity incurred a net loss. The MF industry should use this type of messaging or data points to educate investors about the risks associated with the mutual funds.
Simple explanation: The industry should explain standard deviation of a fund in simple and easy to understand language. Also, the industry should make people know about volatility and risks involved in various types of funds. For instance, the risks involved in large cap funds are lower than mid cap and small cap funds.
Stress test and risk management: The stress test result of the MF industry done on mid cap and small cap funds has not changed in the last four years. The industry should set up a well-defined process to manage risks prudently and communicate it to MF investors.
Ananth also urged the MF industry to reach out to SEBI if they see any wrong thing happening in the industry.
