Amfi forms panel to study risk management practices

Sujoy Manna

Mumbai, Jan 1: The Association of Mutual Funds in India (Amfi) has set up a committee to study the risk management practices followed by the mutual funds in India. The committee headed by Mr Alok Vajpeyi, chief operating officer of DSP Merrill Lynch Mutual Fund will compare the various risk management norms followed by the domestic mutual funds with the international system so as to evolve a proper risk management system for the industry.

Speaking to The Financial Express, AMFI chairman AP Kurien said, "The committee is to study and compare the risk management practices followed by the industry and to recommend required improvements."

"The risk management is an essential aspect of investment management and the industry has not looked into the area so far. The review is to see whether any new system can be put in place among others," added Mr Kurien.

The Financial Institution Reform and Expansion project (FIRE-II) is also collaborating with AMFI by providing technical assistance in studying the matter. The committee is expected to submit its report to the Securities and Exchange Board of India (Sebi) in the next 2-3 months for final consideration.

The mutual fund industry is subject to standard risk like market risks and counterparty risks along with scheme-specific risks. There is also concentration risk which arises due to some funds having higher exposure in a particular stock or company. Investments under the scheme may also be subject to various risks like credit risk, liquidity risk, interest rate risk, reinvestment risk among others.

Credit risk is risk resulting from uncertainty in counterparty’s ability or willingness to meet its contractual obligation.