Stocks

Does SEBI have the mechanism to monitor whether MFs invest as per scheme objectives?

PALAK SHAH Mumbai | Updated on May 03, 2021

RTI reveals regulator had no such data

Did market regulator SEBI fail in regulating Franklin Templeton Mutual Fund (FTMF)?

A right to information (RTI) query by Virendra Jain, an investor activist and founder of Midas Touch Investor Association, has revealed that SEBI had no mechanism to monitor if the MF schemes had deployed the funds as per the stated investment objectives, whether the schemes had adhered to or were complying with its contractual terms with the unit holders and were adhering to all the MF regulations. Ratnajit Bhattacharjee along with other FTMF investors have filed a petition in the Supreme Court (SC) based on Jain’s RTI. SEBI told Jain that it did not have any data on individual schemes of MFs.

FTMF is under a cloud for mismanaging six debt schemes after it suspended redemptions in them last year, locking in more than ₹26,000 crore worth investors’ money. SEBI has also show-caused FTMF and senior officials for fraudulent trading practices.

But investors say even SEBI did not do its duty.

“SEBI has failed. For decades now, MFs have been in the business of managing investor money but SEBI told me it has no data on individual schemes. SEBI does not even know if funds raised by MF schemes were being deployed as per stated objectives. All this information I have gathered from SEBI’s public disclosures and its response to my RTI. To my knowledge, SEBI has never told SC that FTMF invested money as per the investment objectives of the schemes,” Jain told Business Line.

Jain’s RTI is significant. FTMF investors have told SC that the fund was reckless, mismanaged the deployment of money and was in violation of its investment objectives as declared in the offer documents. Further, there are allegations of breach of contract and trust of unit holders by FTMF as it withheld price sensitive information. Had SEBI monitored scheme wise data of funds deployment, it would have caught FTMF earlier, petitioners have argued.

SEBI penalises companies for wrongful deployment of IPO money but does not have data on the same for MFs, Jain says.

According to Madhumita Bhattacharjee, the council for the petitioners in SC, SEBI does not lack powers since the SEBI Act allows it to oversee MFs beginning with registration, constitution, management of MFs and operations of trustees, constitution and management of AMC, custodian, schemes of MFs, investment objectives, valuation policies, real-estate, infrastructure and debt fund schemes, general obligation, inspection and audit.

SEBI can also initiate action in case of defaults and on other miscellaneous matters.

Published on May 03, 2021

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