When I joined Sebi, industry body Assocham organised a meeting on mutual funds (MFs). That was my first public interaction with the MF industry. At that time, there were only some public sector mutual funds, with Canbank mutual fund being among the more prominent ones.
There were no regulations for them, unlike the global scenario in which fund houses operated under strict guidelines. So, before permitting private sector players, we framed regulations for them and ensured compliance. However, UTI was the biggest MF, but not regulated by the Sebi. It came under Sebi's jurisdiction four years later.
Since MFs are like collective investment schemes where the decision-making is left to the expert fund managers, the idea was to impart competition in the industry that would result in improved efficiency, better service and returns to the investors.
However, investors have not entered the industry aggressively because today, fixed deposits are giving better returns and virtually risk-free. Only few mutual fund schemes are giving better returns in relation to the risks involved. The performance of schemes is also dependent on the fund manager. MFs, many times, go wrong because they have to balance out their investments and hence, in trying to average out, the risk-reward suffers.
I don't think the industry is over-regulated. In fact, there is a need to make MF products that a lay investor can understand and hence, more disclosures are required. Schemes need to be better explained, which is yet to happen in the offer documents. Investors should know how the scheme will work, how the fund manager is performing and so on. After providing all the required information, let the investor take a decision.
G V Ramakrishna, former chairman of Sebi
