Fraudulent MF redemptions by impersonators threat to investors confidence: Sebi chief

Mumbai, Aug 22 (PTI) 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.

He stressed the need for heightened vigilance, urging asset management companies (AMCs) to respond swiftly and track evolving fraud patterns as perpetrators become more sophisticated.

While there is a need to diversify beyond the blue chips, he noted, mutual funds as a retail product should exercise caution while investing in micro-cap or debt papers in bespoke deals.

According to him, maintaining proper documentation for such investment decisions ensures transparency and sound due diligence.

He was speaking at an event organised by the Association of Mutual Funds in India (Amfi).

Reiterating the need for vigilance, 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 said, adding that such modus operandi may be shared across asset management companies (AMCs) and qualified Registrars and Transfer Agents (QRTAs) to prevent recurrence of such cases.

Speaking at the event, Sebi Whole Time Member Amarjeet Singh also called on the mutual fund industry to focus on responsible growth while upholding governance, transparency and ethical conduct.

"I firmly believe that as long as we remain true to the basic principles of governance, accountability, transparency and ethical conduct, mutual funds will continue to grow and serve as a powerful and trusted investment vehicle for Indians," he said.

Highlighting opportunities for expansion, Singh said there is enormous scope to expand the investor base further with the help of new products such as Specialised Investment Funds and deeper digital penetration.

At the same time, he cautioned against chasing scale at any cost.

"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 fair and ethical practices to inspire the trust of regulators and stakeholders.

Singh emphasised that while regulators play a critical role in ensuring discipline, an internal culture of self-regulation is equally vital.

"The self-disciplined ethical culture can very nicely complement what we are trying to do together for the growth of this industry," he added.

He also noted that the mutual fund sector is facing intensifying competition, with mounting 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," he said.

Stressing that investor interests must remain at the core of industry practices, Singh said it is key to ensuring that "investor interests are always placed above short-term gains and that long-term value creation remains our guiding principle." PTI IAS SP HVA