Sebi pulls up mutual funds industry

The Securities and Exchange Board of India on Wednesday pulled up the Indian mutual fund industry for investor unfriendly practices and asked the Association of Mutual Fund of India to cooperate with the market regulator to focus on investors and expand its reach, especially in rural areas.

"Some of the mutual fund houses are using term initial public offering or at par issue for their new schemes to lure investors. This is an attempt to lure investors to subscribe to their issues by misleading them," M Damodaran, chairman, SEBI said addressing a mutual fund summit organised by Confederation of Indian Industry in Mumbai on Tuesday.

He said issues like miscommunication and excessive churning of portfolios have been taken up with AMFI and mutual fund companies would have to change the way they market their new schemes.

Expressing concern over investor unfriendly practices, he said rebates and incentive to distributors were being used to drive the new schemes, at times at the cost of investor interest.

"Similarly, asset management companies were churning their investment portfolio excessively, raising questions over for whom such activities were being done. Perhaps, the brokers get better income for high level of churning," he said.

The AMCs should not focus on short-term gains but promote the image among investors that mutual funds can provide reasonable returns over a period of time.

AMFI should not take an infinite time to come up with suggestions and solutions for improving the mutual fund industry practices but should be prompt in taking up issues concerning investors, he added.