In a tough message for returns-focussed mutual funds, regulator Sebi Chairman Ajay Tyagi on Tuesday said the industry has exposed its fault lines with several risky investments made for want of higher yields and it is high time for them to play as per the rule book and stop compromising on safety.
Referring to the industry’s tagline of ‘Mutual Funds Sahi Hai’ (mutual funds are right), Tyagi said the investors repose a lot of faith and trust in these funds but the industry must remember it takes years to build this trust but even a single event may erode it.
Addressing the mutual fund industry body AMFI’s Members Summit here, Tyagi said a certain element of self-discipline by the players themselves could have averted the problems they have landed into after credit defaults and the regulator might not have been required to step in with remedial measures.
He said the industry needs to remember the clear distinction between lending and investing and a mutual fund’s investment strategy needs to have required elements of safety as well as returns.
He also said trustees cannot remain passive participants in the MF ecosystem and they need to step up their efforts as first-level gatekeepers in cases of concerns and lapses.
Trustees need to take immediate remedial steps and inform Sebi and not wait for the regulator to step in and take corrective measures, he said.
“Sebi’s primary objective is the protection of investor’s interest, based on which we have issued appropriate regulations and circulars from time to time. These regulations and circulars have been drafted with wide consultation with all stakeholders and due analysis. Needless to say that the industry needs to adhere to them and play as per the rule book,” he said.
Tyagi said till about a year back, the significant growth of the mutual fund industry was one of the most talked about success stories of capital markets in India.