Mumbai: Securities and Exchange Board of India (SEBI) chairman Tuhin Kanta Pandey on Friday cautioned mutual funds to be prudent while investing in micro-cap companies and bespoke debt instruments, given the risks involved.
Speaking at an event organized by the Association of Mutual Funds in India (AMFI), Pandey said:
“While there is a need to diversify beyond blue chips, mutual funds as a retail product should exercise caution while investing in micro-cap or debt-papers in bespoke deals. Maintaining proper documentation ensures transparency and sound due diligence.”
He highlighted that micro-caps often face liquidity issues and experience higher price and volume volatility compared to larger companies with wider investor participation.
Concerns Over Fraudulent Redemptions
Pandey also flagged the issue of fraudulent redemptions by impersonators, urging asset management companies (AMCs) to act swiftly when such cases arise.
“As fraudsters grow more creative, we must be more vigilant. Each time such a case is detected, AMCs must act promptly and share modus operandi across the industry. Speed of information is our greatest weapon,” he stressed.
Cybersecurity and Outsourcing Accountability
The SEBI chief underscored the importance of cyber resilience as more investors transact digitally, warning that even a single breach could dent investor confidence. He directed fund houses to ensure systems are robust, resilient, and continuously tested against emerging threats.
Pandey further clarified that while outsourcing can improve efficiency, it does not reduce responsibility.
“Mutual funds remain fully accountable for the actions of vendors or partners. Agreements with third parties must ensure there is no scope for data leakage,” he said.
Expanding Investor Base Beyond Top Cities
On distribution, SEBI is evaluating proposals to incentivize mutual fund distributors to attract first-time investors outside the top 30 cities (B30). Pandey said this would expand financial inclusion by bringing new participants into underrepresented regions.
