Trustees must act fearlessly, build guardrails for MF industry: Sebi chief

Tuhin Kanta Pandey urges mutual fund trustees to set up early warning systems, strengthen oversight, and avoid passive compliance to protect investors

Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India (Sebi), on Monday urged mutual fund trustees to implement early warning systems that can detect anomalies and trigger timely interventions.

 

He also called for their active engagement in establishing guardrails to safeguard the industry and investors.

 

Speaking at the Leadership Dialogue for Trustees of Mutual Fund, Pandey described trustees as the first line of defence in ensuring the integrity of systems and processes related to valuation practices and risk management.

 

“When needed, trustees are empowered to act — to question, to escalate, and, if necessary, to intervene. This authority carries with it the moral duty to act decisively and fearlessly, to protect the interests of investors,” said Pandey.

 

He further urged trustees to independently test internal controls of asset management companies, seek clarifications on compliance reports, and challenge assumptions where necessary.

 

Pandey emphasised that trustees must keep pace with evolving areas such as derivatives, alternative assets, ESG investing, and risk analytics, noting that specialised training in these areas is essential for effective oversight.

 

“Oversight must have depth — not just documentation,” he said, underscoring that the appearance of conflicts must be avoided or transparently disclosed to maintain credibility.

 

The Sebi chairman also outlined measures taken to clearly delineate the roles of trustees and AMC boards. These include mandating independent evaluation and due diligence by trustees, while AMC boards are required to establish unitholder protection committees.

 

Further, AMCs must implement structured mechanisms to prevent market abuse, such as front-running, insider trading, and misuse of sensitive information. Trustees are expected to verify these mechanisms to ensure they function both in spirit and substance, the chairman added.

 

Highlighting the growth of the mutual fund industry — assets under management reached ₹75.6 trillion as of September, with 56 million unique investors — Pandey underscored trustees' role as custodians of investor trust.

 

“Trustees should not be passive recipients of Sebi’s reforms. You must engage actively by proposing workable guardrails, suggesting simplifications that do not weaken the safeguards, and bring wide experience during the consultation process,” he said.