Tongue-lashing for funds

Sebi chief says mutual fund growth not in line with the rest of the market

The Securities and Exchange Board of India (Sebi) Chairman M Damodaran lambasted the domestic mutual fund industry whose growth, he argued, has not been in line with the rest of the market.

"The industry has failed to communicate clearly to those who hold their money in mutual funds," Domodaran asserted.

Speaking at the inaugural address at a Confederation of India Industry (CII) -sponsored Mutual Fund Summit 2005, the Sebi chairman expressed concern over the poor perception that investors have of mutual funds as an investment option.

"Though advertisements pertaining to mutual funds have given the message that the MFs are subject to market risks, the companies have failed to spread awareness, on what these market risks are," he said.

He was also critical of the MF industry for its failure to tap the huge potential that lies beyond the existing customer base. The players are trying to grab the investor from the other players rather than trying to bring in new investors, he said.

Rebating is creating distortions within the industry and is standing in the way of future growth (of the industry).

"Today the market is driven by the distributor. One needs to understand that the top priority should be given to the investor. As a result, the distributor sells new funds which are identical to the old funds floated by the same company for a little more money that they acquire form it, thereby misleading the investor," he said.

Speaking of the bulky offer documents filed by fund houses, Damodaran said "One cannot expect the customer to read through the entire bundle of pages comprising the offer letter, and other information. There should be more thought on what are the immediate needs of the customers." The markets regulator is open to simpler application forms, he added.

Speaking at the first plenary session, U K Sinha, joint secretary in the finance ministry, said that there was a need for the mutual fund industry to change focus and look at the largely untapped rural investor base.

He also said that the important thing for the industry was the fact that there was a regulator, and that no investor needed to worry so long as the regulator was looking into all aspects relating to investments.

Earlier in the day, A P Kurian, chairman, Association of Mutual Funds in India (AMFI) charted the growth of the industry, explaining that in the past three years, 30 fund houses had set up 300 branches. Among the new products that were in the offing real estate, commodities and gold funds were promising ones, he felt.