Fake MF redemptions, fraudulent trade apps: Sebi's big warning to investors

The regulator asked investors to exercise caution when encountering messages on platforms like WhatsApp, Telegram, or other apps that claim to offer stock market access through FPIs

Markets regulator Sebi has issued a strong caution to India’s growing base of mutual fund investors: beyond market volatility, fraud and operational risks are emerging as serious threats.

 

Speaking at an Association of Mutual Funds in India (Amfi) event on Friday, Sebi Chairman Tuhin Kanta Pandey highlighted cases of fraudulent redemptions by impersonators, where fraudsters pose as investors to redeem units. “Each time such a case is detected, AMCs must act promptly and track evolving patterns,” Pandey said, urging mutual fund houses to share modus operandi across asset managers and registrars to prevent recurrence.

 

Key Warnings for Mutual Fund Investors

 

Fraudulent redemptions on the rise – Investors should safeguard KYC details and use only official AMC/registrar channels for transactions.

 

Micro-cap and bespoke debt risks – While diversification is good, Pandey cautioned that retail mutual funds must be careful about investing in micro-cap stocks or customised debt deals, which carry high risks.

 

Need for documentation – Proper due diligence and paperwork are critical to ensure transparency in investment decisions.

 

Responsible Growth Over Quick Wins

 

Sebi Whole Time Member Amarjeet Singh echoed the caution, stressing that the industry must balance growth with governance and ethics.

 

“A strong culture of ethical behaviour is the best safeguard against the lure of quick wins,” Singh said.

 

He noted that while regulators provide guardrails, self-regulation within AMCs is equally vital to maintain investor trust.

 

Singh also pointed to opportunities in Specialised Investment Funds (SIFs) and digital penetration, but warned that “scaling responsibly” is the only way to achieve sustainable growth.

 

A Second Warning: Fraudulent Trading Apps & Social Media Scams

 

In a separate advisory, Sebi also cautioned investors against illegal trading schemes promoted on WhatsApp, Telegram, and mobile apps that falsely claim to give access to the stock market through foreign portfolio investors (FPIs).

 

Sebi clarified:

 

Resident Indians are not allowed to invest via the FPI route, except in limited cases.

 

Misleading offers such as “IPO allotments at discounts,” “institutional trading accounts,” or “block trades at cheap rates” are red flags.

 

Investors should verify registration status of entities on Sebi’s website and only use authentic trading apps of Sebi-registered intermediaries.  Investors have been advised "to be wary of misleading claims such as institutional trading accounts, IPOs at discounted prices, guaranteed allotments in IPOs, opportunities to participate in anchor book and block trades at discounted rates".

 

What it means for you

 

Be cautious with your MF account details – Treat login IDs, OTPs, and KYC details like your bank credentials.

 

Don’t chase exotic funds blindly – Higher risk in micro-cap or bespoke debt investments may hurt long-term wealth creation.

 

Use only trusted apps and platforms – Avoid WhatsApp/Telegram groups promising shortcuts to stock market riches.

 

Focus on governance and ethics – Stick with AMCs that are transparent in their practices and consistently communicate with investors.  With inputs from PTI