Sebi looking to tweak mutual fund risk management framework, says official

The Securities and Exchange Board of India (Sebi) is looking to tweak the risk management framework for mutual funds (MFs), S V Murali Dhar Rao, executive director, Sebi said on Wednesday.

The framework covers aspects such as roles and responsibilities of trustees, the board, management and even key personnel of asset management companies.

“In view of the changing landscape of the MF industry and financial markets in general, the regulator is in process of issuing a revised risk management framework for MF,” Rao said at a panel discussion organised by FICCI.

Sebi is also looking at measures for developing passive funds. These include increasing liquidity for exchange traded funds (ETFs), efficient market making and better disclosures and transparency.

ETFs, which have a very low total expense ratio compared to actively-managed mutual funds, have been attracting investors attention in the last few years. From Rs 1.54 trillion at the beginning of FY21, ETFs AUM has almost doubled to Rs 2.9 trillion at the end of FY21. Despite the growth, AUM of passive funds still is a fraction of actively-managed equity schemes.

Industry players believe as long as active funds generate alpha for investors, ETFs may not take off in a big way in India. Over the shorter as well as longer time frame several of the active equity funds categories have managed to beat the benchmark indices.

Speaking at the same event, Nilesh Shah, Group President & MD, Kotak Mahindra MF said passive funds will take off when alpha generation from active fund managers will come down.

The panel discussion also focused on international investing which has been gaining momentum in the last few years. MF players believe that investors should look at international funds for diversification in the portfolio.