The official of the Securities and Exchange Board of India said that liquidity is an important benchmark.
"There could be credit or operational risk. More risk management guidelines will be forthcoming as the capital markets regulator will discuss on these issues," he said.
Mahalingam said prudent management is required for the sustainability of the mutual fund industry on a long-term basis.
"Sustainability is required. The MF industry is growing at 21-22 per cent and this growth rate will not be there forever. It will come down," he said.
Asking whether the MF instruments are competitive as compared to bank deposits, he said, "Safety of the investments is equally important and this feature has to be in-built."
The MF industry should leverage techonologies and reach out to retail investors
beyond metro or tier-I cities.
Mahalingam ruled out the possibility of using mutual funds as payment instruments in India in near future as it is done in some other countries. He said that there is "a credibility issue" in the MF industry which can be addressed through awareness drive.
N S Venkatesh, chief executive of the Association of Mutual Funds in India said that the growth of assets under management (AUM) in the industry is expected to be flat this fiscal.