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The Tribune Talk ‘SEBI 2.0 to build investor confidence in mutual funds’
‘We have moved on from being a PT Master’ |
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The Tribune Talk The Tribune has launched a series of interactive sessions titled ‘ The Tribune Talk’ featuring the best and the brightest of personalities from a range of diverse fields. The inaugural talk in Chandigarh featured KN Vaidyanathan, Executive Director, Securities and Exchange Board of India (SEBI), who spoke on the challenges and opportunities that mutual funds face in the country. Before he joined SEBI in 2009, Vaidyanathan had spent two decades in private financial services. An MBA from the Indian Institute of Management, Ahmedabad, he is in charge of SEBI’s Investment Management Department which, among other things, looks after mutual funds.
Chandigarh, April 9 Other than Hong Kong and Singapore, the Indian capital markets were the only ones that had no settlement issues. Since then, SEBI has been working on making the markets more favourable and attractive for the retail investor. Though the secondary markets have grown in India, the primary market and the mutual funds have not grown as significantly,” he said. Elaborating on how the market regulator was trying to build investor confidence, the ED said that the rules on listing of companies had been tightened.
“We have also created systems where we can identify those manipulating the markets to make gains; recover the unlawful gains made by them; and, then re-distribute these back to the investors. To make Mutual Funds more attractive to investors, we have tried to bring in more transparency by asking fund houses to list meaningful disclosures on their website. We are trying to reduce new fund offers and asking fund houses to consolidate their products, besides asking them to de-risk the system by launching low risk products. By abolishing the entry load (which was as high as 2.5 per cent), we have also managed to bring more transparency for investors,” he said. He added the step had saved Rs 2,500 crore. No fiscal measure of the the government had led to such massive savings. Vaidyanathan said that with these measures he hoped that the abysmally low penetration of the capital markets (1.2 per cent) in investors would be increased. “The total size of the MF sector is estimated at Rs 6,26,000 crore. Of this, 40% is in retail. Getting people to have faith in the Mutual Fund market is the biggest challenge before us, which gets only 10 per cent of the total savings made by investors in India. A majority of the investors (over 50 per cent), still prefer bank deposits for savings,” he said. Taking the audience on how SEBI was conceptualized in year 1992, Vaidyanathan said that: “It was to address the three pain-points of investors, especially after the Harshad Mehta scam that the need for creating a market regulator was felt. Gone are the days when the investor was fooled into buying shares at the highest price of the day and selling it at the lowest price of the day. Now, by taking even the big bulls in the capital markets by its horns and penalizing them severely for defaults, we are trying to attract more and more investors. The audience, too, came up with their queries and Vaidyanathan held them in awe by explaining why index funds could not be a substitute for mutual funds to attract retail investors. He also dealt at length on how abolition of entry load on Mutual Fund investment was beneficial to investors. The ED was delivering the talk to an August gathering of industrialists, investors, bureaucrats and investment advisors from across Punjab and Haryana. Trustees of The Tribune Trust , Justice (retd) S S Sodhi and Lt Gen (retd) S S Mehta , Editor in-Chief, The Tribune Group of Publications, Raj Chengappa, General Manager, The Tribune, Sanjay Hazari, Editor Dainik Tribune, Naresh Kaushal and Editor Punjabi Tribune, Varinder Walia were also present on the occasion.
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‘We have moved on from being a PT Master’ Chandigarh, April 9 Vaidyanathan spoke to B-school students on ‘Vision and Challenges before SEBI’. In an interactive session, he said SEBI was mandated to ensure that capital markets in the country transferred capital from those with the funds to those in need of it in the most efficient and transparent manner. “SEBI’s vision includes five ideas; protection of investor interest, winning the trust of stakeholders in the market, building highly efficient and structured markets, contributing to India’s growth story and finally building resilience in the market to absorb shocks and traumas,” he said. He added SEBI’s role had evolved since its inception after the Harshad Mehta crisis in 1992. Now, there was an understanding among capital market participants that the regulator was important for long-term stability and prosperity of the market. On challenges, he said mis-selling and mis-buying were the greatest obstacles to wider participation. He added only there were only 1.5 crore retail investors, which was a very low rate of Capital market participation. He added SEBI acted as protector of the investor in several ways. The organisation was moving from controlling functions to regulation. SEBI was also ensuring that disclosures by institutions and market participants were meaningful. Investors were being protected by laying emphasis on education and creating awareness about Capital markets. Mis-selling and Mis-buying was under the scrutiny of the regulator and he expressed concerns that distribution of financial products needed to be regulated better. “Markets run 100 times faster than regulators. However, the regulator must ensure that people trust SEBI,” he added. He said trust was built when there is competence, consistence in action, fair decisions and a general sense that expectations from the regulator are being fulfilled. To operationalise these, an important measure that SEBI had recently taken was that the cost of compliance with the law was reduced and the cost of non-compliance was very high. He quoted a recent decision of Rs 50 crore fine on a business house to illustrate the point. On creating a vibrant and efficient market, he said technology was just an enabler. He added screen-based trading was the game-changer for the way markets function. “We need to be aware that regulator is needed to ensure that a fair transaction occurs for both the buyer and the seller and that the transaction occurs. Technology is fine, but it can also cause flash crashes. Then our job is to minimise or to introduce systems that minimise the systemic risk when this happens,” he said. On how SEBI’s vision allows it to promote growth, he said Capital markets allowed wealth creation and thanks to entrepreneurs like Narayana Murthy, money was no longer a bad word in most parts of the country. He advocated that there should always be a connect between the markets and the real economy. On building resilience in the economy, he said this was an important function and SEBI’s aim was to gradually take the retail participants to more evolved financial products. Concluding on a cricketing analogy, he said SEBI did have a UDRS system in place, where its decisions could be appealed against.
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