The assets in control of MFs soared to a record high of Rs 17.9 lakh crore last month
In order to boost small investors, the market regulator is mulling instant redemption (withdrawal) for investors in liquid mutual funds. Currently, it takes up to three days to withdraw money or cash out.
The regulator Securities and Exchange Board of India is in talks with mutual funds (MFs) to standardise and introduce instant redemption.
"We need to think about parameters to go along with this. There shouldn't be a liquidity crunch," said G Mahalingam, whole-time member of Securities and Exchange Board of India (Sebi). He was speaking at an event organised by the Association of Mutual Funds in India (Amfi).
"How much liquidity demand can we manage? Are we prepared to keep a portion of assets in liquid form? How can we take this concept forward without attracting any problems in terms of financial stability," he said, addressing MF players.
Sebi may initially keep a cap on such transactions to prevent systemic risk.
Besides, Mahalingam also pointed out rising instances of MF players not conducting investor education programmes or campaigns in a disciplined way.
"It's not Amfi's job alone. There has to be equal participation from individual asset management companies. A negative aspect with regard to such a campaign is lack of enthusiasm," he noted.
"We need to set a vision for the growth of the MF industry. Sebi is closely watching how investors respond to such campaigns," Mahalingam said.
He also suggested MF players to work on the content of product advertisements and investor campaigns and ensure that no advertisements promise unrealistic returns in order to lure in people.
"Such bad practices undermine the confidence of the investors. So if we expect mutual funds to grow, we need to weed out the bad practices," Mahalingam said.
Sebi had last year proposed overhaul of regulations governing investment advisors. It had proposed to curb unsolicited investment advice and promotion of investment products through social media platforms.
It also proposed greater checks and balances for online investment advisory services. The proposal had faced resistance from market players.
Mahalingam also talked on bringing "ease of doing business" in the MF industry. He said the regulator is looking to simplify entry and exit of small investors from MFs.
The assets in control of MFs soared to a record high of Rs 17.9 lakh crore last month.
Illustration: Uttam Ghosh/Rediff.com