Page 49 - Banking Finance February 2024

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This has made young investors more willing to skip the
dubious comfort of guaranteed products, to consider market
products such as National Pension System and smallcases.
This can be further leveraged to wean investors away from
schemes such as small savings and Employees Provident
Fund which cast a burden on the exchequer.

Power of Regulation
The growth of the mutual fund industry is also testimony to
the fact that in India, micro regulations that put customer
interests first, can deliver growth even if they initially
displease industry.

Financial product regulators in India, be it SEBI, Reserve investors are aware that equities can deliver capital losses
Bank of India or Insurance Regulatory and Development
is moot. The fund industry needs to do more to convey this
Authority of India are often torn between tightening the
message and gate flows in overheated categories.
screws in their constituents and fostering their development
through liberal regulations. In fact, they are urged to let go A second issue is that of too much money chasing too few
of their consumer protection objectives to promote 'ease
of doing business.' opportunities. While the equity assets managed by mutual
funds have expanded tenfold to Rs. 20 lakh crore in 10 years,
the number of investment worthy stocks has not gone much
But the success story of mutual funds demonstrates that
SEBI's approach of regulating first and taking feedback later, beyond 500 or so listed names. While SEBI cannot do much
to expand the investible universe, it can look at redefining
is not without its merits.
marketcap segments by percentiles, so that all large and
The mutual fund industry has grown to its current size midcap funds are not chasing the same 250 stocks.
despite SEBI setting a hard limit on its fees, banning upfront
commissions, opening up a direct route and dictating the Despite SEBI writing new regulations at a brisk pace,
categories of products that that may be sold. instances of mismanagement and governance have cropped
up. Franklin Templeton has managed to return capital to
Many of these regulations are not in vogue in global markets investors after abruptly shuttering six troubled debt schemes
or other financial products. But they have helped to ensure in 2020. But it has subjected investors to opportunity costs
that mutual funds have grown to a Rs. 50lakh crore size and prolonged loss of liquidity. Whether openend funds can
without any large fraud or scam where investors have had suo motu decide to lock investors into their schemes,
their capital wiped out. (The last such event was the US64 remains a loose end.
bailout.)
It also remains a mystery how a dealer at Axis Mutual Fund
Challenges Ahead managed to run an elaborate scam to frontrun the fund's

If Rs. 50lakh crore in MF assets is a milestone to be trades, without this coming to the attention of his managers.
celebrated, it presents new challenges too. Rather than treating these instances as aberrations, AMCs
need to subject their governance, risk management and
The first challenge is how to throw cold water on hiring processes to more stringent scrutiny to prevent them.
exaggerated investor expectations when a flood of retail
money is chasing high recent returns. It needs to be kept in In an industry where investors can vote with their feet, a
mind that 40 per cent of the annual SIP book of Rs. 1.4lakh single instance of mismanagement by one player is enough
crore and an equal proportion of the 14 crore MF folios have to unravel the trust that has taken 20 years to build. (Refer
been created in the frothy post Covid market. Whether these to BusinessLine)

44 | 2024 | FEBRUARY | BANKING FINANCE