SEBI Chief Tuhin Kanta Pandey Cautions MFs Over Micro-Cap Stocks
Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey stated that mutual funds (MFs) should be cautious when investing in micro-cap stocks, following the announcement of measures to restrict short-tenure derivatives and create a regulated platform for pre-IPO shares.
Sebi is also looking to introduce further incentives to encourage first-time women investors, he noted.
“There is a necessity to diversify beyond large-cap stocks, but mutual funds as a retail offering should tread carefully. Keeping comprehensive documentation for such investment choices helps maintain transparency and proper due diligence. Apart from investment risks, we must also consider operational risks that could shake investor trust,” Pandey said at an event hosted by the Association of Mutual Funds in India (Amfi).
Another focus is to boost the involvement of women in mutual fund investing, he mentioned. “Financial inclusion cannot be deemed complete unless women have equal representation, hence we are planning to roll out extra distribution incentives for investments made by first-time women investors.”
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Data from AMFI shows that women's assets under management (AUM) constitute a third of all individual investors' AUM as of March 2024.
He highlighted the issue of fraudulent redemption attempts by impersonators. “As scammers become increasingly innovative, we need to be more alert. Each time such incidents are uncovered, asset management companies (AMCs) must respond quickly and keep a close watch on the changing trends in these activities. “In this fight, the rapid flow of information is our most effective tool. Alongside operational risks, we must also acknowledge the vulnerabilities that arise from our increasing dependence on technology.”
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“With more investors engaging online, even one security breach can lead to long-term damage to trust. Our systems must therefore be strong, resilient, and consistently tested against emerging threats,” the Sebi chairman remarked.
He emphasized that data privacy should be a fundamental concern for mutual funds. “Investors place their trust not only in us to manage their finances but also to handle extremely sensitive personal data. Safeguarding that information is just as crucial as safeguarding their assets.”
Although outsourcing has improved efficiency, it does not diminish accountability. “Mutual funds are still fully liable for the actions of their vendors or partners. Consequently, agreements between AMCs and third parties must ensure that there is no risk of data breaches.”
Pandey underscored the need to increase mutual fund penetration. Currently, under five percent of India's population invests in mutual funds, revealing significant untapped potential. Thus, enhancing penetration is a primary focus, he asserted.
“We are implementing a range of initiatives to support and promote the industry. One such initiative is to offer incentives to distributors for investments from first-time individual investors in B30 cities. This will not only attract new participants but also expand the reach of mutual funds into underserved areas, furthering financial inclusion,” Pandey concluded.