Mutual Funds
SEBI mulls guidelines to contain mutual fund mis-selling by national distributors and banks

The market regulator is putting together guidelines for banks and national distributors to check mis-selling of mutual funds

Market watchdog Securities and Exchange Board of India (SEBI) is mulling further strengthening the mutual fund (MF) distribution system to prevent possible cases of mis-selling by banks and national distributors. Recently, the Association of Mutual Funds in India (AMFI) had sent a strict warning to national distributors like HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank who were actively engaged in the AUM transfer business. Incidentally, Moneylife had reported about such practices by national distributors earlier. (Read here: However, these entities in their reply to AMFI did not show any signs of strengthening their guard against mis-selling.
SEBI has now proposed that the risk appetite, investment objective and affordability of the customer should match with the product. Besides, national distributors and banks will have to seek an acknowledgement document from the clients before a client invests in a scheme. The acknowledgement document will contain the customer category and a statement of fee earned from a particular product. The market regulator has also suggested recording the calls of all relationship managers with the customers for auditing and has also proposed periodic auditing and compliance of these new norms.

SEBI is working along with the National Institute of Securities Markets (NISM) to formulate the guidelines. The working group committee will also include representatives from banks and national distributors.

However, industry experts believe that mis-selling cannot be completely ruled out.
 “Some amount of mis-selling cannot be avoided in any profession. Some doctors prescribe medicines suggested by a pharmaceutical company. Some coaching classes don’t teach properly. In a democracy, nothing is mis-sold; it is either sold or not sold. If something is sold that means both parties have agreed. Mis-selling is more prevalent in Unit Linked Insurance Plans (ULIPs) and insurance but the regulator Insurance Regulatory and Development Authority (IRDA) is defending it. Mis-selling should be curbed by creating investor awareness by SEBI,” said a top official from a leading fund house.

“These recommendations are not feasible. All relationship managers will start calling from public booths. You can’t record conversations on mobile phones. It will deter national distributors from mis-selling but in some or the other way mis-selling will continue,” said a Mumbai-based financial planner.

Recently SEBI had asked fund houses to disclose all complaints received by them on their respective websites and in their annual reports by 30 June 2010 in order to increase transparency.




6 years ago

I am of the opinion that this procedure to monitor Banks and NAtional Distributors should continue at regular frequency and let RBI also take a part in it. Let RBI ask the Private, Public and Foreign Banks to dispaly at the front gate, at each desk of Relationship Managers the Charter of CHARGES levied by Banks for various services especially marketing third party products. Let there be surprise checks at different location branches by RBI personnel of possible violation


6 years ago

.Almost all the customers of banks except a few are not even aware what products are sold to them by the banks. Customers who approach banks for loan or credit facility or any othe obligation from the banks are coerced directly or indirectly to buy mostly Insurance based ULIP products or MF schemes. The customers are not told the risks involved in investing in those products. Nobody will try to control this situation because big vested interests are involved. SEBI can do very little to help the investors. Every customer/investor himself needs to be aware and do his own investing. And thanks to moneylife foundation. They are helping the people increase their awareness.

Dhiren Gala

6 years ago

don't u feel, SEBI & AMC houses, should advertise continously in newspapers, business channels, etc that now customers should pay directly to distributors to safeguard themselves from mal practices. SEBI wants distributors to be prepare & improve their skills. Let SEBI make investors knowledgable.

Rajat Jolly

6 years ago

Some New TV Serials sorry NFOs

Mis-selling start with the launching the filmsy Funds. Read the full article at

V n Kulkarni

6 years ago

mis-selling is not because of lack of knowledge/training but it is becasue of greed of commission.
The more you reduce commission ,more mis-selling will be done....

manish d hathi

6 years ago

the best way to increase mutual fund penetration in the country is by simplying the mutual fund investment.

here the sebi should at once bring out a common application form across all mutual funds at once.

this common editable application form , like kyc fom can be available on all mf websites , amfir websites.

this will greatly reduce the efforts of the distributors , registrars , mf houses as well as save printing expenses in crores annually for the mf industry as a whole.

one standard application form will greatly simplify the procedures and checking work etc at registrar office,mf office etc

also sebi should help the IFA people by offering online mf platform which was supposed to go live from 01/04/10.

because big distributors and banks will only chase big clients.

sebi needed to warn the four distributors as they were eating the aum's of small distributors by unethical means.

if IFA'S HAVE TECHNOLOGY they can very surely promote the cause of mutual funds.

their establishment costs are also very low as most of the individual agents operate from their home.

they are at present in dire need of such help , still sebi is asking help from national distributors and banks who are mostly interested in selling insurance which will not only cover their establishment cost but bring lucrative profits.

on the contrary sebi should prohibit banks and brokers from selling mutual funds as experience and statatics has shown that they are more interested in selling insurance.

even sale of mf through brokers has not helped much

sebi by not providing helping hand in the form of online platform exclusively for ifa category is only forcing the small distributors to step in the shoes of national distributors like nj india for technology and loose their individual identity.

kinly take up this matter with sebi.

thank you - manish d hathi.


I&B ministry has its hands full trying to regulate satellite TV channels

Television channels are coming up in India at a mind-boggling rate—there’s a launch of a new channel almost every week. But regulating these channels is turning out to be a tough, if not impossible, task

The Ministry of Information and Broadcasting (I&B) has asked all TV channels to provide details of their respective Wireless Planning & Coordination (WPC) licenses by 11 June 2010. WPC licenses are issued to satellite channels when they are given the authorisation to broadcast. According to estimates, there are 512 channels which beam into the country’s households on a daily basis. Sources close to the matter say that almost 100 applications are waiting for clearance for additional channels. India must be the country that has the maximum number of satellite television channels in the world—which is proving to be a regulatory nightmare.

In 2009, the minister for information & broadcasting, Ambika Soni, had written to the Telecom Regulatory Authority of India regarding the breakneck speed of proliferation of TV channels across the country, due to issues like excessive spectrum utilisation. On 18 January 2010, the ministry had reiterated its concerns over the mushrooming of channels saying in a note: “The spectrum and transponder capacities for satellite TV channels are not unlimited.”

This is not the I&B ministry’s first diktat. Earlier, it had issued a notice to all satellite TV channels on 25th March seeking details on their WPC licences, asking them to reply within 15 days. Sources close to the matter confirmed to Moneylife that a number of channels did not respond, so the ministry was forced to extend its deadline and issue a fresh diktat on 11th June.

We tried repeatedly to get through to the ministry on this issue, but neither the minister nor any of her staff could be reached. The I&B ministry’s website also does not give any details on which satellite channels have not responded with the requisite details.

Despite being in the business of ‘information’, none of the satellite channels have responded to our queries till the time of writing this report.

Professor Priya Raj, professor of marketing consulting from the Asia Pacific Institute of Management, New Delhi, told Moneylife, “The main idea of the ministry is to look at the validation of these (WPC) licenses. It is quite logical because there are channels that have kept their documents on hold for various reasons and are sitting on them. The ministry has to keep a tab on which licenses are in use or not in use, to clear pending applications.”   

Is this another case where companies are openly flouting rules because of the absence of a regulator specifically for the satellite industry? Is the ministry at Shastri Bhawan just another toothless tiger?

And why cannot TV channels respond to such a simple issue—does it require an application under the Right to Information Act to get these details?


Coal India’s Rs12,000-crore IPO likely in September

"We had planned to bring the CIL IPO by July or August. But it could come in September also. We will bring the issue when conditions are good," coal minister Sriprakash Jaiswal said

Indicating that the initial public offering (IPO) for Coal India Limited (CIL) could be postponed beyond August, the government today said that it will wait for good market conditions to launch it, reports PTI.

"We had planned to bring the CIL IPO by July or August. But it could come in September also. We will bring the issue when conditions are good," coal minister Sriprakash Jaiswal told reporters in New Delhi.

"Coal India will file its Draft Red Herring Prospectus (DRHP) by the month-end. We will definitely bring the CIL IPO," Jaiswal added.

Mr Jaiswal had earlier said that the government could mop up over Rs12,000 crore through the CIL issue.

The government is looking at divesting 10% of its equity through the IPO. At present, the Centre owns 100% equity in CIL.

The Union cabinet is yet to clear the proposal. Some left-wing trade unions have also been opposing the proposed sell-off.

On using imported coal prices as the benchmark for domestic coal, the minister said, "We have no such plans (as of now)."

However, Mr Jaiswal had said last week that "in the recent price revision exercise, efforts have been made to price higher grades of non-coking coal of Eastern Coalfield Ltd closer to import parity needs to be carried further."

The Planning Commission has also supported linking domestic coal prices to that of imported coal.

The government has been taking steps to bridge the coal demand-supply gap, which the minister pegged at 60 million tonnes for the current fiscal, by importing the fuel as well as mining it in joint ventures with foreign companies overseas and then shipping the produce to India.

"There are two options—one is importing coal to bridge the gap. The other is acquiring coal properties abroad in joint ventures for meeting our demand," he said.

"We are evaluating which of the two options would be more beneficial for Coal India. We will decide accordingly," he said.

CIL is in talks with US-based Massey Energy, Peabody Energy and Indonesia's Novem/Sinarma for mining coal jointly.

At present, the coal major is conducting due diligence on five properties of these firms in Australia, USA and Indonesia.

"We are also scouting in South African nations," he said.

On the Naxal menace affecting the country's coal production, he said, "Wherever the law-and-order situation is not good, coal mining work is hampered. But the government has no plans to halt mining in those areas."

Many coal-bearing states, including Jharkhand and Orissa, are Naxal-infested.

India produced 531 million tonnes of coal during the last fiscal, out of which CIL's output stood at 431.5 million tonnes.





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