SEBI chief calls for more caution, transparency from MFs when investing in microcaps, debt papers

SEBI Chief calls for more transparency from MFs when investing in Microcaps, debt papers

Market regulator Securities and Exchange Board of India (SEBI) Chairman, Tuhin Kanta Pandey, appreciated the efforts of the mutual fund industry in channelising savings at an event marking 30 years of the Association of Mutual Funds in India (AMFI). However, he also cautioned the industry about investing in microcaps and certain debt instruments.

Pandey said, “While there is a need to diversify beyond blue chips, mutual funds—as a retail product—should exercise caution while investing in microcaps or debt papers through bespoke deals. Maintaining proper documentation for such investment decisions ensures transparency and sound due diligence.”

The SEBI chief also advised the industry to ensure that no preferential treatment is given to any class of investors during subscriptions or redemptions. He said, “By strictly adhering to the cut-off time for all classes of unit holders, the industry can instill a greater degree of confidence among investors.”

Pandey further highlighted that beyond investment risks, the industry must also be mindful of operational risks that could undermine investor confidence. He noted, “One such concern is the menace of fraudulent redemptions by impersonators. As fraudsters grow more creative, we must remain vigilant.” He added that whenever such cases are detected, asset management companies (AMCs) must act promptly and monitor emerging patterns in these practices. Sharing such modus operandi across AMCs and registrar and transfer agents (RTAs) is essential to immediately prevent recurrence. “In this battle, speed of information is our greatest weapon,” he emphasised.

The SEBI chief also pointed to the vulnerabilities that come with growing reliance on technology. “As more investors interact digitally, even a single breach can cause lasting damage to investor confidence,” he warned. Pandey also stressed the importance of data privacy, saying, “Protecting that data is as important as protecting their money. It must be a top priority for mutual funds.”

On outsourcing, he remarked that while outsourcing has enabled efficiency, it does not reduce accountability. “Mutual funds remain fully responsible for the actions of vendors or partners. AMCs’ agreements with vendors or third parties must ensure there is no scope for data leakage,” he said.

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Pandey complimented the mutual fund industry on its achievements but reminded them of their core responsibility: “Amidst this exciting future, let us remember that our true benchmark is not just AUM, but trust and management. On this Foundation Day, I urge you to innovate responsibly, balance creativity with caution, grow inclusively, reach investors in every village, town, and city, and uphold trust relentlessly.”

He concluded by saying, “Mutual funds are not just financial products; they are enablers of aspiration, bridges to opportunity. Today, as a reaffirmation of our collective mission, let us make mutual funds not just ‘sahi hai,’ but ‘zaruri hai’—not just the right choice, but the default choice, depending on varying risk appetites and financial goals.”