Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey on Friday told mutual funds (MFs) to exercise caution while investing in micro-cap companies, a day after announcing plans of clipping short-tenure derivatives and a regulated platform for pre-IPO shares. Sebi is planning to introduce additional incentives for investments by first-time female investors, he said.
“While there is a need to diversify beyond bluechips, mutual funds as a retail product should exercise caution. Maintaining proper documentation for such investment decisions ensures transparency and sound due diligence. Beyond investment risks, we must also be mindful of operational risks that can undermine investor confidence,” said Pandey an event organised by the Association of Mutual Funds in India (Amfi).
Push for deeper financial inclusion
Another priority is to encourage greater participation of women in mutual fund investing, he said. “Financial inclusion will remain incomplete unless women are equally represented, and we are thus planning to introduce additional distribution incentives for investments from first-time women investors.”
Women investors’ assets under management (AUM) account for a third of individual investors’ AUM as of March 2024, according to AMFI data.
He pointed at the menace of fraudulent redemption by impersonators. “As fraudsters grow more creative, we must be more vigilant. Each time such a case is detected, AMCs must act promptly and monitor the evolving patterns in such practices. “In this battle, speed of information is our greatest weapon. Alongside operational risks, we must also recognise the vulnerabilities that come with our growing reliance on technology.”
“As more investors interact digitally, even a single breach can cause lasting damage to confidence. Our systems must therefore be robust, resilient, and continuously tested against evolving threats,” the Sebi chairman said.
Securing investor data in the digital age
Data privacy must remain a top priority for mutual funds, he said. “Investors entrust us not only with their wealth, but with highly sensitive personal information. Protecting that data is as important as protecting their money.”
While outsourcing has enabled efficiency, it does not reduce accountability. “Mutual funds remain fully responsible for the actions of vendors or partners. Thus, AMCs’ agreements with vendors or third parties must ensure there is no scope for data leakage.”
Pandey stressed the penetration of mutual funds. At present, less than 5% of India’s population invests in mutual funds, highlighting the immense potential that lies ahead. Increasing penetration is, therefore, a key priority, he said.
“We are taking a series of measures to facilitate and encourage the industry. One such proposal is to incentivise distributors for investments from first-time individual investors in B30 cities. This will not only bring new participants into the fold, but also extend the reach of mutual funds into under-represented regions, contributing to deeper financial inclusion,” Pandey said.