Sebi chairman warns fund managers over bad assets

Chairman of Securities and Exchange Board of India (Sebi) Ajay Tyagi on Thursday cautioned fund managers against adding bad assets in their portfolios while investing in fixed-income securities.

“….Another issue is that there have been instances of defaults in debt portfolios of mutual funds. Mutual funds need to strengthen their own due diligence and evaluation mechanism and not depend only on credit rating agencies. In terms of practice, one should be more careful. Care should be taken that NPAs (non-performing assets) do not get shifted to mutual fund portfolios by way of transfer of debt. Fund managers need to be watchful and responsive,” said Tyagi at a summit organised by mutual fund industry lobby Association of Mutual Funds in India (Amfi).

At present, there are 44 fund houses in the country, which managed average assets worth ₹19.47 lakh crore as on May 31.

Tyagi hinted a strong concern at Sebi over multiplicity of mutual fund schemes and asked the industry to lower the number of schemes by consolidating the ones that have similar investment objectives.

“There is more required to be done in terms of merger and consolidation of schemes. Forty-five fund houses are selling more than 2,000 schemes. We need to consolidate the number of schemes. More schemes lead to confusion amongst the investors. This needs to be further pursued by Amfi to the mutual funds that this merger of schemes happen so that it further simplifies things and increases credibility of mutual funds among investors,” said Tyagi.

Tyagi also urged fund houses to be careful while bringing in investors under new types of investment routes such as Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs).

“This really is a testing time for fund managers. We are concerned about individual investors. REITs and InvITs are new instruments. Fund managers should first educate themselves and then educate the investors about these new instruments and new avenues. Sebi has followed a guarded approach about investment in new instruments,” said Tyagi.