The Hindu Business Line : Stop ‘misselling’ MF schemes, says Bhave

Mumbai, March 8 Mr C.B. Bhave, Chairman, Securities and Exchange Board of India, has asked the mutual fund industry to stop “misselling” their schemes to investors.

Misselling happens when distributors of mutual funds sell products to investors without explaining the details of the schemes, the likely return, and the inherent risks.

Misselling has been rampant in investment oriented products such as mutual funds and unit-linked insurance products. Distributors of these products often exaggerate the benefits and downplay the risks of the products, said a mutual fund analyst.

Speaking at a mutual fund award function here on Friday evening, Mr Bhave said: “There are distribution issues about misselling, and I am not here today to talk about regulation but to talk of self-regulation. I am sure the industry will take sufficient steps to see that SEBI doesn’t have to step in.”

“You should be able to regulate your distributors in a manner that investors do not complain that the products were missold to them,” he said.

Need for caution

“Let us also remember that there will be things that the so-called experts in the market would not understand. The best banks in the world have failed in this area: that their management didn’t understand what their traders were doing. We need to be cautious about that,” he said.

“As India integrates with the world and our markets get more sophisticated, more complex products for investment would be available. Understanding these products and their inherent risks will become increasingly important,” Mr Bhave said, adding: “We may need to hone our skills to understand these products better.”

“All of us will have to take care that we do not want a fund manager suddenly telling us that the Board of Trustees of the mutual fund or the fund manager didn’t understand the product, if you suddenly face losses in that particular scheme,” he said.

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