Irregularities in Mutual Funds questioned in the Lok Sabha

Last Updated on October 1, 2023 at 5:59 pm

Shri Anurag Thakur, Minister of State for Finance & Corporate Affairs has listed out several irregularities in mutual funds in response to a question in the Lok Sabha. SEBI has informed the ministry of the following types of irregularities or non-compliance’s:

• Failure to identify and appropriate all the expenses in the individual schemes as per the regulatory requirements
• instances of borrowing for purposes other than those allowed under Mutual Fund Regulations
• failure to carry out valuation of investments made by its scheme(s) in accordance with the investment valuation norms specified in Eighth Schedule
• instances of close ended schemes investing in assets which had maturity beyond the maturity of the scheme
• non-adherence to sectoral limits for debt-oriented schemes resulting in concentration of risk, etc.

The minister mentioned the following as actions taken by SEBI in response:

1. 2016-17: 37 warning letters and 35 deficiency letters were issued to AMCs  Mutual Funds/ Asset Management Companies (AMCs) and adjudication proceedings initiated against three Mutual Funds.
2. 2017-18: 17 warning letters and 15 deficiency letters were issued to AMCs and two deficiency letters were issued to the Fund Trustees!
3. 2018-19: 47 warning letters and 24 deficiency letters were issued to AMCs, two warning letters were issued to Fund Trustees  and adjudication proceedings initiated against five AMCs, four Trustee Companies and one CEO of AMC.

There are likely to more in the current FY! For example SEBI issued a show-cause notice to HDFC and Kotak for extending FMPs with bad Eseel Bonds. Read more:  Eroding trust: Are mutual funds really market-linked products?

While the minister in his written response pointed out the measures take by SEBI to protect investors (eg. rationalizing scheme TER and disclosure and categories), I think there is a long way to go before investors can breathe easy and feel safe. The next time you see a “mutualfundssahihai” ad, do this: