Not returns but trust is the key to capital market success: Sebi’s Tuhin Kanta Pandey to MF trustees

Trust, Not Just Returns, Is the Foundation of Markets: Sebi Chief Pandey to Mutual Fund Trustees

The strength of India’s capital market relies not merely on regulations or returns, but in trusting that the system will always act in the best interest of investors, Sebi Chairman Tuhin Kanta Pandey said on October 13 while addressing the Leadership Dialogue for Mutual Fund Trustees.

“The true measure of our success is not the size of our AUM, but the depth of our investors’ trust,” Tuhin Kanta said.

Pandey called fund house trustees as the “guardians of India’s mutual fund ecosystem” who have played a fiduciary, moral and institutional role in protecting the investor confidence. Mutual funds have evolved from a niche savings option into a powerful vehicle of wealth creation and financial inclusion, said the chairman. “What was once a niche savings route has now become a powerful instrument of wealth creation for many — from small households investing through SIPs to large institutions building long-term portfolios.”

Pandey added that over the past decade, the mutual fund industry’s assets under management (AUM) have grown six-fold from around Rs 12 lakh crore to Rs 75.6 lakh crore as of September 2025. The number of unique investors has risen from one crore to over 5.6 crore, with nearly 18 percent of assets coming from beyond the top 30 cities. Monthly SIP flows that stood at Rs 3,000 crore in April 2016 have now consistently crossed Rs 28,000 crore.

Given the expansion, Sebi chairman cautioned that governance responsibilities of trustees as custodians of investor trust have become more critical than ever, and outlined three defining principles for them - independence, oversight, and accountability. Trustees must ensure robust early warning systems mechanisms that detect anomalies, track exceptions and trigger timely interventions.

“Your role is not ceremonial - it is fiduciary, moral, and institutional. You stand between investor and intermediary, ensuring transparency and fairness is upheld transaction, every product, every disclosure,“ Tuhin Kanta said during his address to trustees.

Highlighting evolving expectations, Pandey urged trustees to strengthen operational vigilance, test internal controls independently, and act decisively in the interest of investors when needed. He emphasized on the independence, oversight and accountability of trustees and said, “Three simple but powerful principles define the trustee’s role, Independence - not just in name, but in judgment and action. Oversight - not just reactive, but proactive. Accountability - not just to the regulator, but to every unitholder whose savings you safeguard. This role is unique in the financial system - combining fiduciary care with regulatory oversight, strategic foresight with ethical restraint.”

Sebi chairman also pointed to the growing complexity of the mutual fund industry, with emerging asset classes, ESG investing and technology-driven platforms demanding deeper expertise. “Continuous learning and specialized training are not optional - they are essential,” he added.

On the regulatory front, Pandey said several of Sebi’s initiatives are aimed at reinforcing governance and transparency. These include clarifying roles and responsibilities between trustees and AMC boards, mandating structured mechanisms to prevent market abuse, and realigning AMC employees’ interests with unitholders through revised investment and disclosure norms.

Tuhin Kanta Pandey also said that trustees must ensure that regulatory relaxations do not weaken discipline or investor safeguards. “Strong governance is the bedrock of investor confidence, and this confidence drives the stability of the industry,” he added.

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Looking ahead, Pandey said trustees would play a strategic role as mutual funds expand into new areas such as passive funds, international exposure, tokenized assets and AI-enabled portfolio management. “Technology can enable transparency, but only good governance can ensure trust. As regulators, our role is to set clear rules, ensure fair play, and nurture innovation. But no regulation can substitute for judgment, diligence, and integrity — the values you, as trustees, embody every day”, Sebi chairman said.

Tuhin Kanta assured of continued regulatory engagement to simplify where possible, clarify where needed, and strengthen oversight where required.