Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,086.70114.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

Safety of investments cannot be compromised for higher yields: Ajay Tyagi to MF industry

The MF industry needs to do its own analysis to avoid such situations in future: Tyagi.

ETMarkets.com|
Aug 27, 2019, 05.56 PM IST
0Comments
BCCL
Ajay-Tyagi-BCCl-1200
Mumbai: The Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi on Tuesday said that mutual funds cannot compromise the safety of investments for higher yields and an investment strategy must have elements of safety as well as returns.

Speaking at the Association of Mutual Funds in India (Amfi) members summit, he pointed out that the industry’s total industry assets under management (AUM) accounts for only around 11 per cent of the GDP, while the corresponding figure in the US is around 100 per cent and the global average is close to 60 per cent.

While we have taken steps to restrict such investments, the industry as a whole needs to do its own analysis on a regular basis to avoid such situations in future, he said.

Tyagi added that the mutual fund industry has grown substantially over the last few years, but it still had a long way to go.

Comparing AUMs as on March 2015 vis-à-vis July 2019, the AUM of the entire industry has more than doubled from around Rs 10 lakh crore to the present level in just four years.

The AUM of equity schemes during the same period has increased from around Rs 3.5 lakh crore to Rs 7 lakh crore and that of non-equity schemes has increased more than 2.4 times from around Rs 7 lakh crore to Rs 17 lakh crore.

He pointed out that the last one year saw several credit defaults by some entities having an adverse impact across the financial sector in India, which led to a cascading effect with significant redemption pressures in debt mutual fund schemes, more so in liquid schemes.

“Till about a year back, the significant growth of the mutual fund industry was one of the most talked about success stories of capital markets in India,” said Tyagi

“The events in the last year, however, exposed the fault lines in the industry and showed that a credit event in even one issuer/group could have a contagion effect leading to liquidity risk across the market,” he added.

Within just 2 months -- September and October -- the AUM of all debt oriented schemes as a whole fell by 18 per cent and that of money market schemes fell even more, by 25 per cent.

Tyagi said the recent events also threw into the spotlight several risky investments made by the industry in the quest for higher yields.

“The safety of the investment cannot be compromised for want of higher yields. While we have taken steps to restrict such investments, the industry as a whole needs to do its own analysis on a regular basis to avoid such situations in future,” he said.

This was despite the fact that the total exposure of all mutual funds schemes to the stressed securities was only around 1 per cent of the total AUM of all debt oriented schemes.

He pointed out that Sebi undertook a review of the risk management framework of debt funds, especially liquid funds, and prudential norms governing investments in debt and money market instruments. Sebi also reviewed the existing valuation provisions to make them more reflective of the realizable value, to bring in uniformity and consistency in approach, increase robustness of the process and address possible loopholes and misuse of the provisions.

“The tagline often associated with Mutual funds is “Mutual Funds Sahi Hai,” he said.

“We ought to remember that it takes years to build trust in an industry and only a single event may erode it. So there should be a collective effort by all stakeholders including AMCs, trustees and SEBI to uphold and maintain that trust and faith,” he added.

Also Read

Sebi action against auditors not 'turf war': Ajay Tyagi

A lot of NBFCs will have to rewrite their script: Ajay Tyagi, UTI AMC

Brokers cannot misuse clients’ securities: Ajay Tyagi, Sebi chairman

Sebi chief Ajay Tyagi says Infosys probe underway

Pick stocks across sectors and market capitalisation: Ajay Tyagi, UTI AMC

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service