Mutual funds caution: Sebi chief warns against fraudulent redemptions; promises incentives for women investors

Markets regulator Sebi chairman Tuhin Kanta Pandey on Friday cautioned the mutual fund industry that beyond market-linked investment risks, operational risks such as fraudulent redemptions by impersonators pose a growing threat to investor confidence.Speaking at an event organised by the Association of Mutual Funds in India (Amfi), Pandey stressed the need for heightened vigilance, urging asset management companies (AMCs) to respond swiftly and track evolving fraud patterns as perpetrators become more sophisticated, PTI reported.Reiterating his point, Pandey said, “Beyond investment risks, we must also be mindful of operational risks that can undermine investor confidence.

One such concern is the menace of fraudulent redemptions by impersonators. And 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.” He added that such modus operandi should be shared across AMCs and qualified Registrars and Transfer Agents (QRTAs) to prevent recurrence.Pandey further underlined the need for diversification but warned that mutual funds, as a retail product, must exercise caution while investing in micro-cap or debt papers in bespoke deals.

He said maintaining proper documentation for such decisions ensures transparency and due diligence.On the inclusion front, Pandey said Sebi is planning additional incentives for investments by first-time female investors. “Financial inclusion will remain incomplete unless women are equally represented. We are thus also envisaging to introduce an additional distribution incentive for investments from first-time women investors,” he noted.He added that Sebi is also proposing incentives for distributors promoting investments from first-time individual investors in B30 cities (tier-2 and tier-3 towns). The move, he said, will help widen the investor base and extend mutual fund penetration into under-represented regions, boosting financial inclusion.Pandey also disclosed that Sebi is reviewing the categorisation of mutual fund schemes to provide greater flexibility for product innovation, improve clarity, and address overlap issues.

“These measures are expected to facilitate the industry to become more transparent and investor-friendly,” he said.As part of its ease-of-doing-business initiative, Sebi has already discontinued the requirement of over 52 reports, notices and addendums to be filed by AMCs. The regulator is now working on a comprehensive simplification of mutual fund regulations over the next few months to ease compliance while safeguarding investor interests.At the same event, Sebi Whole Time Member Amarjeet Singh also urged the mutual fund industry to focus on responsible growth while upholding governance and ethical conduct. “We must scale responsibly and in the right manner. A strong culture of ethical behaviour is the best safeguard against the lure of quick wins,” he said, stressing that AMCs must demonstrate their commitment to transparency to retain the trust of regulators and stakeholders.He noted that with intensifying competition, the sector faces pressure to innovate, grow assets under management (AUM), and deliver superior returns. “In such an environment, it can be tempting to chase growth at any cost. Rules and regulations, therefore, play a very vital role in providing the necessary guardrails that protect investors and ensure discipline,” Singh added.