The Securities and Exchange Board of India (Sebi) asked Indian mutual fund (MF) houses to strengthen their due diligence and valuation mechanism for debt funds and not depend only on credit rating agencies. Sebi chairman Ajay Tyagi, speaking at the Association of Mutual Funds in India’s (Amfi) first mutual fund summit on Thursday, also added that more needs to be done to attract investors from beyond top 15 (B15) cities. Tyagi, in his key note address, said, “There are instances of defaults on debt portfolio, so mutual funds should not only depend on credit rating agencies and need to have their own valuation mechanism. I would also say that care should be taken that non-performing assets (NPA) do not get shifted to mutual fund portfolios by the way of debt transfer and fund managers need to be watchful and responsive.” He also added that benefits of the booming capital market has to reach people in far-flung areas, through advertisements informing them on the risks involved with mutual funds. The AMFI-CRISIL Fact Book, released during the summit, suggests that B15 cities have seen faster growth in assets at 30% compound annual growth rate (CAGR) in the past three years ended March 2017, compared with 27% for the top 15 (T15) cities.
Distributors will also continue to play a big role in creating awareness about the product, especially in under-penetrated regions, while the advisory-based model should find offtake in bigger cities. Amfi also announced that for the first time, assets under management (AUM) of the Indian mutual fund industry has touched `20 lakh crore recently. A Balasubramanian, CEO of Birla Sun Life Asset Management Company (AMC), and chairman of Amfi, said, “The AUM can reach `94-95 lakh crore by 2025. Even if the industry grows at the current rate of 23% per annum it can easily achieve that number. Even the folios can reach 13.3 crore by 2025 from 5.6 crore now.”
Sebi also said that fund houses should be careful while bringing investors under infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). “We have followed a guarded approach about investment in new instruments. REITs and InvITs are new instruments, fund managers should first educate themselves and then educate the investors about these new instruments and new avenues,” added Tyagi. Sebi also indicated its concerns over multiplicity of MF schemes and asked the industry to lower the number of schemes by consolidating the ones that have similar investment objectives. It also stated that, it was encouraging to see the active role of mutual funds in corporate governance in companies where they are investing.