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SEBI Warns Fund Houses

Newly appointed SEBI Chairman C.B. Bhave has asked fund houses to prevent their distributors from engaging in misselling of funds to investors.

Just days after the new rule has been introduced regarding mutual fund advertisements, SEBI, the regulatory body for financial market in India, has asked the fund houses to ensure that they keep a check on the misselling of funds to investors. The newly appointed Chairman of SEBI, Mr.C B Bhave, in a mutual fund award function in Mumbai on March 8 2008, said “There are distribution issues about misselling and I am not here today to talk about regulation but to talk of self-regulation.” He said that the fund houses should themselves take necessary steps in this regard so that SEBI need not step-in.

Bhave emphasized that it's the fund houses responsibility to see that their agents are well informed and do not engage in unethical activities like misselling. Referring to the fund houses, Bhave said, “You should be able to regulate your distribution in a manner that investors do not complain that the products were missold to them.”

Untapped Market
He also highlighted the importance of tapping investors from the non metropolitan markets. “There is a market out there, which is untapped. This is a challenge for all of us as how to reach this market. We have to see that the message is delivered in a language the investor understands” he said.

Need For Caution
Bhave also said that there were rising complaints from investors that derivative products have been offered to them without complexity of these products being explained to them properly. Also emphasizing the complexity of the new sophisticated products being offered in the market, he said “understanding these products and their inherent risks will become increasingly important.”

Mr Bhave also advised the investors to remain vigilant and expect optimum returns rather than maximum returns.

AMFI Chief AP Kurian, who also spoke at the function, said “There was a need to change the mindset of people and make them more aware of opportunities available in mutual funds.”