The Hindu : Business : `MFs must communicate market risks properly'

Online edition of India's National Newspaper
Thursday, Jun 16, 2005

Business

Business

`MFs must communicate market risks properly'

Special Correspondent

Regulator open to sort out issues; focus on new investors

EXPANDING THE REACH: The Chairman of Securities and Exchange Board of India, M. Damodaran (right), with the Chairman of the Association of Mutual Funds in India, A. P. Kurian, at a summit on `India Mutual Fund Industry: Crossing the Rubicon', organised by the Confederation of Indian Industry in Mumbai on Wednesday. — Photo: Paul Noronha

MUMBAI: The Securities and Exchange Board of India (SEBI) Chairman, M. Damodaran, on Wednesday said mutual funds had failed to communicate market risks properly to investors and were trailing market growth.

"This is an industry which communicates very well, but it still has not communicated clearly to those who hold the money", said Mr. Damodaran, giving the inaugural address at the two-day Mutual Fund Summit 2005 organised by the Confederation of Indian Industry (CII) here.

The SEBI Chairman expressed concern over the poor perceptions that investors had of mutual funds. He felt that investors needed to be told about the market and what market risks were all about. The standard disclaimer that goes out with every advertisement by the industry, `returns are subject to market risks' was quite confusing to investors simply because `market risk' had nowhere been defined or properly communicated. Over-communication in terms of asking the investors to read bulky offer documents should also be avoided.

Mr. Damodaran lamented that the industry had grown, but at a snail's pace and the number of investors had not grown. He urged the asset managers to give more importance to how much new money had come in.

One needs to understand that investors should hold the top most position in the mutual fund industry, he said, as against distributors defining the priority.

Mr. Damodaran felt that "rebating" was a problem that needed to be tackled. "Rebating is creating distortions for the industry and standing in the way of future growth", he said.

The SEBI chief said the market regulator would be more than open to looking at issues that affected the mutual fund industry, and working out ways and means to make mutual funds more interesting from an investor's perspective.

Earlier, 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 were promising ones, he said.

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