Big Brother Sebi monitoring mutual fund agents' tall claims

Telemarketing agents soliciting customers by promising huge returns on mutual fund investments may do well to think twice before making tall claims. For, market watchdog Sebi may be listening.

The capital market regulator Securities and Exchange Board of India (Sebi), which administers mutual funds, is said to be contemplating various ways to weed out any kind of mis-selling by the distributors, agents and relationship managers of fund houses.

The possible guidelines for the same are being drawn by Sebi, along with the National Institute of Securities Markets, an institution entrusted with the tasks of educating investors and market players.

The suggestions currently being deliberated include recording of sale or promotional calls that the executives, including those at fund houses and distributors, make to new or existing customers, a top official said.

The fund houses would also need to audit these recordings periodically and report compliance to the mutual fund industry body, Amfi, and Sebi on a periodic basis, the official said. Adding, that such compliance reports would be needed to be filed along with the remedial actions for all the mis-selling activities noticed in these recordings.

The distributors, although they agree that the mis-selling of products can be checked with these measures, are not very keen to adopt the practice, given the fact that their payouts have already gone down with the recent volatility in the market and scrapping of entry-loads on mutual funds.

But, Sebi seems to be firm on its position and the new guidelines, if implemented, would be part of its various investor protection measures taken in the mutual fund space.

Recently, Sebi also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors.

According to the Code of Conduct framed by Sebi for MFs, “Mutual Funds are required to monitor the activities of their distributors, agents, brokers to ensure that they do not indulge in any malpractice or unethical practice while selling or marketing Mutual Funds units. Any non-compliance with the Mutual Funds Regulations and Guidelines pertaining to Mutual Funds especially guidelines on advertisements and/or sales literature and/or Code of Conduct shall be reported in the periodic meetings of the Board of the AMC (Asset Management Company) and the Trustee(s) and shall also be reported to the Board by the AMC(s) in their CTR(compliance taken reports) and by the Trustees in their Half Yearly Reports.”

Similarly, Amfi has also prescribed a code of conduct for MF intermediaries, under which the intermediaries should “follow the Code of Conduct strictly and not indulge in any practice contravening it directly or indirectly.

“Non compliance with the Code of Conduct shall be reported by the Mutual Funds to the Board and Amfi. Further, no Mutual Fund shall deal with intermediaries contravening the prescribed Code of Conduct,” the Code says.