Mutual Funds
Misselling of MF schemes now a fraudulent trade practice: SEBI

SEBI has brought misselling of MF schemes under its norms on prohibition of fraudulent and unfair trade practices

Mumbai: Cracking the whip on the practice of misselling of mutual fund schemes, market regulator Securities and Exchange Board of India (SEBI) has decided to bring such activities under the ambit of fraudulent trade practices, reports PTI.

 

The move comes at a time when there are reports of rising instances of misselling of mutual fund products to customers.

 

SEBI has brought misselling of MF schemes under its norms on prohibition of fraudulent and unfair trade practices.

 

The SEBI has inserted an additional clause whereby misselling of MF schemes would be deemed to be a fraudulent trade practice.

 

In a notification issued on Tuesday, the regulator said that "misselling" would refer to sale of units of a mutual fund scheme by any person, directly or indirectly by making a false or misleading statement.

 

Among others, sales of a MF scheme by making a false or misleading statement or concealing material facts and associated risks or not taking reasonable care to ensure suitability of the scheme to the buyer, would be considered as misselling.

 

In this regard, the market watchdog has brought in amendments to SEBI's Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.

 

They would come into force on the date of their publication in the Official Gazette.

 

The country's mutual fund industry has over 40 players managing assets worth nearly Rs7 lakh crore.

 

The SEBI, in recent times, has initiated a slew of measures for benefit of mutual fund industry, including provision for a new distributor cadre and incentives for reaching out to smaller cities.

 

Earlier in the day, CS Mohapatra, Advisor to Financial Stability Development Council (FSDC) at the Finance Ministry, said that misselling of products has "become synonymous with the financial sector".

 

He was speaking at an event in New Delhi.

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COMMENTS

Nilesh KAMERKAR

4 years ago

Is it not mis-selling? Is it not misleading? . . .
When Index funds, diversified equity funds and FMPs get classified as 'simple and performing' schemes?

especially when past performance is no guarantee of future results . . .


SEBI sets panel to unify foreign investment guidelines

In consultation with the government, SEBI has set up a committee under former Cabinet Secretary KM Chandrashekhar to bring all foreign investments under a single route

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) has set up a committee under former Cabinet Secretary KM Chandrashekhar to standardise and unify the rules regarding foreign investments made under various routes into the capital markets, reports PTI.

 

The Chandrashekhar committee will simplify and standardise the norms regarding investments into the capital markets by all overseas entities such as foreign institutional investors, foreign venture capital investors (FVCIs), qualified financial/ institutional investors (QFIs) and NRIs, and also to strengthen surveillance over them.

 

"Why should we have various routes/rules for foreign investors? Why should we have sub-accounts, ODIs, FIIs and QFIs and NRIs and all that? In consultation with government, we have decided to combine these various routes which are present today into one single route. And three-four days ago, we set up a committee under former Cabinet secretary KM Chandrashekhar to look into this," SEBI Chairman Upendra Kumar Sinha told reporters on the sidelines of a capital markets summit organised by the industry body CII.

 

However, the SEBI chief did not share more details like when the committee will submit its report and who are the other members of the panel.

 

"QFI inflows have not begun in any meaningful manner. FIIs feel KYC norms are too stringent. Most of the issues have been resolved except for the issue of requirement of PAN (permanent account number for income tax) cards for QFI investments. The government has to tackle that.

 

"But in consultation with the government, SEBI has set up a committee to bring all foreign investments under a single route," Sinha said.

 

Earlier, after the October 6 board meeting, SEBI had said, "With a view to rationalise/harmonise different routes for foreign portfolio investments, SEBI will prepare draft guidelines based on the guidance of the working group on foreign investments, for consideration of the government so that uniform guidelines are made for various categories of investors such as FIIs, FVCIs, NRIs, QFIs etc."

 

Sinha also said that the guidelines to prevent flash crash in the market such as the one that happened on the NSE on 5th October will be in place within a few days.

 

"I expect the final guidelines to safeguard the interests of investors due to flash crashes in a few days," he said.

 

On 5th October there was a 900-point flash crash of the NSE benchmark Nifty which wiped out nearly Rs 10 trillion of investor wealth. The trading was halted for about 15 minutes.

 

SEBI had ordered a probe into the incident and the report is awaited.

 

NSE claimed there was no technical glitch in its system and blamed the crash on erroneous orders worth over Rs650 crore for multiple trades by broker Emkay Global in various stocks on behalf of an "institutional client."

 

Overall, FIIs are the largest players in the domestic market. So far this year, they have pumped in a whopping $21 billion into the domestic equities, the second best inflow after 2010, when they had pumped in over $29 billion.

 

On the back of robust fund flows, the BSE 30-stock benchmark, Sensex, has rallied over 25%.

 

Sinha also advised the corporates to re-align their expectations from the market and make use of the available infrastructure for the revival of the market.

 

The SEBI chief urged corporates to focus more on compliance and strengthen their internal control systems.

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RBI not 'taken on record' Wal-Mart-Bharti joint operations

RBI has also referred alleged violation of the FEMA to the ED for investigation in regard to both Bharti Walmart and e-commerce venture Flipkart Online Services

New Delhi: The Reserve Bank of India (RBI) has "not taken on record" the documents filed for investment of Rs455 crore by Wal-Mart into Bharti group company Cedar Support Services and alleged Foreign Exchange Management Act (FEMA) violation in the matter has been referred to the Enforcement Directorate (ED), reports PTI.

 

"The form FC-GPR filed for issuance of the compulsorily convertible debentures (CCD) has not been taken on record by the RBI to ensure that the CCD are FDI compliant instruments and for the purpose certain information has been called for from the company," Minister of State for Commerce and Industry S Jagathrakshakan said in a written reply in the Rajya Sabha.

 

He said inward remittance of Rs455.80 crore into Cedar Support Services was reportedly brought in by Wal-Mart Mauritius Holdings Co Limited on 29 March 2010.

 

However, the documents for issuance of the CCDs filed with the RBI were "not taken on record by the central bank to ensure that the CCDs are FDI-compliant instruments and for the purpose certain information has been called for from the company," the minister said.

 

The RBI has also referred alleged violation of the FEMA to the Directorate of Enforcement for investigation in regard to both Bharti Wal-Mart and e-commerce venture Flipkart Online Services.

 

Flipkart is under the scanner for allegedly flouting foreign direct investment (FDI) rules which allow e-commerce companies with foreign investment to carry out only business-to-business (B2B) transactions but not business to consumer (B2C) transactions by creating complex structures that may not be permissible.

 

Meanwhile, the government today announced a time-bound inquiry by a retired judge into reports of lobbying by retail giant Wal-Mart to gain entry into India bowing to opposition pressure.

 

The issue of retail giant Wal-Mart lobbying in the US for access to Indian markets has created storm in Parliament with several parties demanding probe into the issue.

 

UPA's outside supporters RJD and SP, which last week bailed out the ruling coalition in FDI in retail matter, were among those demanding a thorough probe into reports that money was spent in India.

 

Wal-Mart had, in its disclosures to the US Senate, said it had spent $25 million over four years for various lobbying activities, including for gaining access to Indian markets.

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