Sebi mulls fresh checks on mis-selling of mutual funds

Regulator Sebi is considering fresh checks against mis-selling of mutual funds and flouting of 'open bank infrastructure' norms for sale of these financial products, while it looks at ways to boost the market penetration through use of mobiles and internet.

The Securities and Exchange Board of India (Sebi), which regulates over Rs 11-lakh crore worth mutual fund industry, has called a meeting of its Advisory Committee on Mutual Funds here tomorrow to look into various issues including those related to further development of this market while ensuring investor protection and better regulation.

The Committee, which includes representatives of various fund houses, industry body AMFI and banks along with independent experts, would discuss issues ranging from upfront commission for agents, potential mis-selling and unclaimed dividend and redemption amounts, among others.

However, one major issue likely to be discussed include flouting of guidelines with regard to 'open bank architecture' for sale of various mutual fund schemes through banks, sources said.

It has come to Sebi's notice that various mutual funds are forcing their promoting banks to sell only their own funds, thereby defeating the purpose of 'open bank architecture' that all fund houses are required to follow.

According to the industry data, some banks are getting more than 50 per cent of their brokerage commissions from single MFs, indicating a special focus on selective fund houses, which mostly happen to be their own group entities.

The issue has already been raised by some fund houses on various forums including at the level of AMFI (Association of Mutual Funds in India) and with the regulator Sebi.
The open bank architecture means that the products of any fund house can be sold by any bank, irrespective of the said bank being a promoter entity for the mutual fund.

Other issues likely to be discussed by the Sebi's Mutual Funds Advisory Committee include product labelling of MF schemes (as per the risks involved for investors), commissions paid to distributors and potential mis-selling and investment and management of unclaimed redemption and dividend amounts.

Issues like managing or advising for Offshore Pooled Assets by local mutual fund managers and expansion of MF penetration through digital platforms may also be discussed, sources said.

There are a total of 46 mutual funds in the country and their total Average Asset Under Management currently stands at about Rs 11 lakh crore. The major players include HDFC Mutual Fund, ICICI Prudential MF, Reliance MF, Birla Sunlife MF, UTI MF, SBI MF, Franklin Templeton MF, IDFC MF and Axis MF.