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MFs adopt unfriendly practices: SEBI chief

Our Bureau

Mumbai , June 15

SEBI today criticised the mutual fund industry for adopting investor unfriendly practices such as offering rebates and incentives to distributors to sell the schemes and resorting to undue churning of portfolio.

The market regulator asked the Association of Mutual Fund of India (AMFI) to cooperate with it to focus on investors and expand its reach, especially in rural areas.

"Rebates and incentives to distributors were being used to drive new schemes, at times at the cost of investors interest," the SEBI Chairman, Mr M. Damodaran, said addressing a mutual fund summit organised by Confederation of Indian Industry here today.

He said Asset Management Companies (AMC) were churning their investment portfolio excessively, raising questions for whom such activities were being done. "Perhaps, the brokers get better income for high level of churning".

The SEBI Chief said issues such as miscommunication and excessive churning of portfolios have been taken up with AMFI and mutual fund companies would have to change the way they market their new schemes.

"The AMCs should not focus on short-term gains but promote the image among investors that mutual funds can provide reasonable returns over a period of time," he added.

The SEBI Chairman was also critical about a large number of new schemes or IPOs being launched by mutual funds. "Some of the mutual fund houses are using the term initial public offering (IPO) or at par issue for their new schemes to lure investors. This is an attempt to lure investors to subscribe to their issues by misleading them," he said.

AMFI should not take an infinite time to come up with suggestions and solutions for improving the mutual fund industry practices but should be prompt in taking up issues concerning investors, he added.

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