Be cautious on spreading reach, Bhave tells funds

Struggling to retain distributors, the mutual fund industry is aiming at “inclusive growth” over the next few years as an offset.

But CB Bhave, chairman of the Securities and Exchange Board of India (Sebi), had a word of caution before asset managers wooed the paanwallah, daily wage labourers and ‘cart-pullers’.

“The word financial inclusiveness should be used with care,” Bhave said addressing the CII Mutual Fund Summit on Wednesday.

He said the concept has a different meaning when used in the capital markets compared with the banking industry.

“There would be people in the lowest income groups who have assets of Rs 50,000 and Rs 70,000. If they invest in the capital markets and demand the money back when the market is falling and the NAV is down, what do you do? That man’s ability to take shocks is limited,” Bhave said asking the industry to be careful of not exposing the low income of a person to high risks to the stock market.

“Their risk profile doesn’t match and is not suitable for the capital markets,” he added.

Bhave also called for less confusion among investors, which is due to the fact that there are many as 3,000 mutual fund schemes currently.

“How much of innovation is real innovation? How much is for short-term interest? Is there really an incentive for launching new funds when existing funds are not able to reach to the masses,” Bhave questioned.

Bhave said the solution for ending this confusion was collective functioning of all asset managers and not just saying “because X is doing it so why can’t I.”

To find out internal problems and solutions without having to formulate statutory guidelines, Bhave suggested that the Association of Mutual Funds in India (Amfi) should be a self-regulatory organisation (SRO). “Amfi must explore a self-regulatory role for the mutual fund industry. It can give a policy paper on mutual funds to Sebi, government.” “It needs to be examined if it is worthwhile for Amfi to be self-regulatory.”

So far the Amfi’s stance has been that it is not an SRO. He, however, clarified that he was not advocating that the Amfi should be self-regulatory and that it is a possible option.

The advantage of an SRO is that you can have your own rules without having to form it as statutory law—-which cannot be changed.

But over the years, the Amfi has clarified couple of years ago that it is an industry body and not a self-regulatory body. “We will look into it and see what is to be done,” said Amfi chairman, A P Kurian.