Sebi wants mutual fund industry to highlight short-term risks better

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The Securities and Exchange Board of India (Sebi) wants mutual fund (MF) companies to be more clear while highlighting the risks associated with such investments.

On the sidelines of the mutual fund summit on Thursday, Sebi chairman Ajay Tyagi said, “MF investment is not a substitute for a bank savings account. That is obvious. But that should also be said straightaway. This is important to make sure investors have the right set of expectations.”

“The regulator’s point is well-taken. We are also having internal discussions to work out ways in which risks can be highlighted more clearly, in a way that even someone completely new to mutual funds can understand the associated risks,” said Ashutosh Bishnoi, director at Association of Mutual Funds in India (Amfi) and managing director of Mahindra MF .

The market regulator feels that the present ad campaigns need to do more when it comes to highlighting the short-term risks of MF investments. Sebi has also asked asset management companies to be more alert to the credit and liquidity risks in their debt schemes.

Fund managers say debt products, which don’t gain much attention from retail investors otherwise, can be looked at in the current market environment.

“One of the important lessons of investing is asset allocation. So, pick asset classes like debt which have underperformed equity for five years and invest at the appropriate time,” said S Naren, chief investment officer of ICICI Prudential Mutual Fund, in an earlier interaction.

Amfi data shows that individual investors accounted for 26 per cent of debt-oriented schemes as of July 2018. Liquid and money market schemes, which typically invest in instruments with maturity of up to 90 days, had a five per cent share. Meanwhile, individual investors accounted for 70 per cent of equity-oriented schemes.

However, experts said the mix is likely to change.

“I see a lot of retail flows coming this year from fixed deposit investors. Adjusted for tax, fixed income schemes give better return over a three year-period,” A Balasubramanian, Amfi chairman and chief executive officer of Aditya Birla Sun Life MF, said in a recent interaction.

Bishnoi added that as more categories gain traction, industry participants are trying to work out ways to appropriately communicate risks for equity, as well as different debt schemes.

Industry body Amfi’s Mutual Fund Sahi Hai campaign, that was launched in March 2017, is a collective effort by the industry to educate investors about the various aspects of investing in mutual funds. So far, these ads tried to highlight different options apart from equity products, the importance of disciplined investing and benefits of direct plans.

According to Sebi’s directives, MFs are required to set apart two basis points (bps) of their net assets towards investor education. Half of this amount, or one bps, is shared with industry body Amfi. Since the launch of the Mutual Fund Sahi Hain campaign, monthly inflows through systematic investment plans (SIPs) have gone up 74 per cent from Rs 43 billion at the end of March 2017 to Rs 75 billion as of July 2018.

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