From Rs 40 trillion to Rs 100 trillion: How SEBI wants mutual funds to chart the way forward

Madhabi Puri Buch, Chairperson, SEBI, says from AMFI 1.0 to AMFI 2.0, the association needs to become more vigilant to ensure that the law and ethics are followed.

Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (SEBI), wants mutual funds to focus on leveraging technology, bringing in robust self-regulation and setting up internal mechanisms to catch frauds as the industry marches towards the Rs 100 trillion assets under management (AUM) milestone.

She expressed confidence in the industry's potential to more than double from its current size of around Rs 40 trillion.

Buch was speaking at the inauguration of the new office of the Association of Mutual Funds of India (AMFI), which was attended by top executives of most Indian fund houses.

The chairperson highlighted that mutual funds was the most preferred vehicle by which SEBI would like to bring household savings into the market.

Also read | SEBI nudges AMFI to form ethics committee to catch bad apples in time

“AMFI is like our 'bada beta' (elder child), and that's why we put a lot of responsibilities on this industry,” Buch said.

At the same time, in a veiled warning, she said that if AMFI failed to adopt robust self-regulation measures, the regulator would step in to ensure investor protection.

Here are key highlights from Buch’s address at the event.

Leveraging technology

At the event, Buch admitted that her key concern for the industry was the lack of the use of technology.

“I place my trust in technology. Today value migrates to where value resides, and value resides where data and technology reside. I think the industry has not leveraged technology as much as it could have inside of itself. I worry for you on that count,” she said.

Buch, meanwhile, acknowledged service providers that have built technology for the industry. “But the industry in itself has not done much in terms of building core technology,” she noted.

She also highlighted that compliances would also become much easier to meet as an industry with the better use of technology.

Checking individual misconduct

The capital market regulator has nudged the Indian mutual fund sector to form an ethics committee as one the first steps needed on its journey to manage assets worth Rs 100 trillion.

Also read | MF industry safe, but Sebi will step in if self-regulation isn't strong: Madhabi Puri Buch

Buch urged the industry to build a superstructure on top of the solid foundation it has built over the years. She also said it was important to keep a check on individual conduct.

“We have been having conversations around AMFI having an ethics committee, and for that committee to take action on individuals who are doing wrong things in the market on a self-regulatory basis. But if we find that that self-discipline is not there, as a regulator, we simply can't allow that to happen,” she said.

Buch’s comments came just over a week after SEBI issued a consultation paper proposing the setting up of internal mechanisms within fund houses to catch frauds such as front-running and insider trading.

According to Buch, from AMFI 1.0 to AMFI 2.0, the association needs to become more vigilant to ensure that the law and ethics are followed.

Leaving behind strong legacy

The chairperson at the event also advised industry leaders to leave behind a strong legacy.

“The industry is now mature enough and the people in charge have reached a certain stage in life where certain things don't matter. Money or stock options shouldn't matter much. We must aspire to leave behind a world which is better for your children,” she said.

To give an example, Buch highlighted the importance of ESG (environmental, social and governance) investing in mutual funds.

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SEBI recently made it mandatory for the largest 1,000 listed companies (by market cap) in India to make ESG disclosures from FY23. Further, it allowed fund houses to launch multiple funds, focusing on a variety of ESG parameters within a single category.

Sustainable funds have gained traction with investor interest rising in ESG issues over the past few years.

“As leaders in the market, we should be conscious about what kind of markets we are leaving behind for our children, and will our children take pride in saying our parents built this market. Going forward, that is going to give us far more satisfaction than aspiring to earn more and more money and bother about our employee stock options,” Buch said, in a lighter vein.