Need To Check Unhealthy Practices In MF Segment

The huge proliferation of mutual fund products can be quite bewildering for the retail investor, said Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister.

Expressing concern over some issues which the mutual fund industry needs to address, he spoke about the “indigestible information overload caused by the multiplicity of products in the mutual fund industry”.

Not only are there numerous schemes, but a scheme may have sub-schemes with different plans and options which complicate things further. As a result, he said, those schemes that are aggressively distributed get attention.

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On advertisements for mutual funds, Dr Rangarajan said: “The rapid-fire manner in which the statutory warning regarding risks from investing are read ensures that the warning is effectively suppressed”.

He noted the expansion that the mutual fund industry has witnessed in recent years, and expressed concern over the limited reach of mutual funds in rural areas. The real challenge for such funds, he said, is to bring in more retail investors, especially those in small towns and rural areas, into their fold.

Unhealthy practices

Another critical issue, which he felt both Securities Exchange Board of India (SEBI) and Associations of Mutual Fund in India (AMFI) needed to address in a more significant way, was that of distributors who act as both financial planners and sellers of mutual funds products, leading to a clash of interest.

Some distributors, when acting as financial planners for the retail investors, are known to push schemes such as new fund offers which earn them much higher commissions than existing schemes. “There is also a need to check unhealthy market practices,” said Dr Rangarajan.