Mumbai: Market regulator Securities and Exchange Board of India (Sebi) has been trying to clean up the mutual funds industry over the last few months. Sebi’s recently appointed executive director K.N. Vaidyanathan says in an interview that mutual funds need to disclose more in their offer documents. “New fund offers (NFOs) must justify investment strategy and risks. The game of garnering money through NFOs is over.” Edited excerpts:
On efforts to boost transparency, disclosures:
One of the things we are pushing is...a new fund offer document. We would like the fund offer document to be a self-contained document... So if you put money in the mutual fund, you need to know what the investment objectives are, you need to explicitly state what are the risks and the mitigating factors for that are. The idea really is can the manufacturer, which is the mutual fund, talk direct to the investor and tell the investor that “I propose to do the following”. I think that would help investors take more informed decisions about it.
Closer look: Vaidyanathan says the capital market regulator would like the fund offer document to be a self-contained one.
So, one of the things that we have embarked about more recently is to take a closer look at the process we have for evaluating new offers or new funds or new schemes that mutual funds have on this measure of transparency.
On new fund offers:
We had a combination of issues which made it easier for fund houses to raise new money under a new banner than to raise new money under an existing fund. Hopefully, that game is behind us. One of the things that they would have to talk about if I am a fund house and I am launching a new fund is how is “A” different from what I have (offered) in the past.
On the role of trustees in protecting investors’ interests.
It’s a process which has just started. It is too early to say if is paying off, but if we go back to the fundamentals of the mutual fund structure in India, it’s a trust set up. The trust or the trustees are the investor facing entities. They carry the fiduciary responsibility; in a sense they are the first level regulators.