MFs depend too much on corporate money: Bhave

Securities and Exchange Board of India (Sebi) Chairman C B Bhave On Wednesday expressed concern over the mutual fund industry’s overdependence on fund flows from corporate houses to increase their assets under management (AUM).

Speaking at the annual mutual fund summit, organised by the Confederation of Indian Industries (CII), Bhave said that the huge redemption pressure faced by the industry last October was mainly due to large withdrawals from corporate houses, and not retail investors.

“Retail investors did not panic even while the Sensex fell from a high of 21,000 to recent lows, but large companies pulled out from mutual funds. This should be a lesson for the industry,” he said.

Last October, companies, which had mainly invested in fixed maturity plans (FMPs) and liquid funds, withdrew their money in large amounts. Many asset management companies (AMCs) were forced to sell their debt holdings at lower prices to meet the redemption pressure.

Stressing the need to focus more on retail investors, Bhave further said that MFs should concentrate more on increasing their individual customer base.

Bhave also said that even the regulator had learnt a lesson from this crisis. “It would be our effort to make the debt market more liquid and bring them to the level of equity markets,” he said.

Talking extensively on know-your-customer (KYC) norms, which many believe were leading to over-regulation of markets, the Sebi chairman said, “If the regulator has to choose between the welfare of investors and the industry, then investors were always the priority.”

This is not the first time that the market regulator has criticised the mutual fund industry. A few months ago, Sebi’s whole-time member M S Sahoo had pulled it up for aggressively churning their portfolios and confusing small investors by launching multiple schemes.

Sahoo had also severely criticised the practice of fund houses launching large number of schemes at regular intervals. “Investors had to choose between the devil and the deep sea. As if 2,000 different stocks weren’t enough, fund houses had launched nearly 1,000 schemes and had another 5,000 options like quarterly, half-yearly, long-term, short-term and so on. This confused the investor completely,” Sahoo had said. Mutual fund association Chairman A P Kurian, who was also present at the summit, said it was likely that the mandatory pan-card requirement for systematic investment plan (SIP) investors below Rs 15,000 would be eased.