Inflows into mutual funds have remained strong despite the recent controversies over their functioning, thanks to the Association of Mutual Funds in India for its successful ‘ Sahi Hai ’ campaign. According to SEBI norms, fund houses have to transfer one basis point of their quarterly assets under management to AMFI for investor education. In an interview with BusinessLine , NS Venkatesh, CEO, AMFI, shares his views: Excerpts:

Has the AMFI taken any follow-up action on the SEBI stricture on MF trustees?

We were not invited to that meeting. What we understand from press reports is that SEBI has shared the findings of inspections conducted over four years. SEBI has told the trustees that they should ensure (protection of) the interest of investors and perform their duty in a more diligent manner.

Trustees are already performing their role and this acts as additional guidelines. SEBI wants them to be a watchdog and be the first step of the regulator. Also, since the trustee board keeps changing, SEBI wants the new trustees to know their role. I think, more such meetings will take place at periodical intervals.

Should SEBI wait for four years to point out the mistakes of mutual funds?

They have done a thematic study before coming to a conclusion. It gives an idea whether an action committed is a mistake or a trend. With data of just one year, we cannot come to this conclusion. They have found some objectionable trends and appraised the trustees of it. The periodicity at best can be reduced to three years. The trustees’ meeting can happen on an annual basis to share the regulator’s findings.

What are the basic concerns of SEBI?

SEBI has highlighted the fact that trustees should ensure that investment principles are followed properly and it should not be fully delegated to AMCs. AMCs should take permission from the trustees prior to investments rather than post-investment. It relates majorly to the investment part.

Do you think trustees should be rotated frequently?

If trustees are changed frequently then they may not be aware of investment principles. There should be a healthy mix.

After the ICICI Mutual Fund controversy, do you think we need separate norms for MF investment in IPOs?

It is all about investment prudence. Individual mutual funds have to take the call to avoid conflict of interest. Maybe as a fallout of this, there could be some SEBI advisory. It is for individual mutual fund boards and trustees to take the call on how much they invest in group companies. If more regulations are put in, then MFs may feel they are being micro-managed. It is a trade-off between rule-based and principle-based regulation.

What is your take on HDFC MF’s allotment of shares to its distributors ahead of the IPO?

Mutual funds are allowed to allot shares to employees. In this case, the fund house thought that distributors are employees and so they might have taken that decision. It also helps them to get their loyalty. It was a preferential retail allotment and was objected to by SEBI.

Is investor money in MFs at risk with so many issues being raised?

Of the so many transactions MFs execute, issues have cropped up only in a couple of them. It got blown out (of proportion) because it became newspaper headlines. Compared to the insurance and banking industry, there is more transparency in the MF industry. On the operational part there may have been some mistakes, but it is minuscule (compared to the) overall transactions worth ₹23 lakh crore.

Has the industry done with categorisation of schemes?

It was done before the deadline. I believe, SEBI may have a re-look after three years to allow new categories. If you stifle the industry with regulations, then there won’t be any innovation. The industry may come out with new products which will not fall in any of the current categories but it may suit the need of the investors. I am sure SEBI will encourage healthy innovation.

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