SEBI raises questions on 'mis-selling' of products by several mutual fund houses

Sources familiar with the matter have informed CNBC TV-18 that SEBI, in its recent communications with various mutual fund houses, has expressed reservations regarding selling practices within the mutual fund industry.

Of particular concern are instances where high-risk mutual funds are being promoted and sold to investors with low risk tolerance.

The regulatory body has highlighted cases where small-cap funds, known for their high volatility and risk, have been sold to senior and super senior investors, potentially exposing them to undue risk.

“We have received a query from SEBI about transactions where retired investors have invested in small cap funds,” a senior official at a mutual fund house told CNBC-TV18.

He further explained that although most of these transactions are facilitated through distributors, SEBI expects the fund house to monitor transactions and ensure a check on risk mismatch.

Additionally, SEBI has questioned investments in schemes with lock-in periods, including solution-oriented funds, which are designed for long-term wealth creation but may not align with the investment objectives of certain investors.

Another CEO of a mutual fund, while stating that they haven't directly received such inquiries, acknowledged the occurrence of such communications. "

“It is SEBI’s way of tightening the noose. A lot of money is flowing into the industry, especially into high risk funds. In such times, many investors are lured by high returns. Essentially, SEBI is emphasizing that it's the responsibility of the fund houses to exercise caution,” said the mutual fund CEO.

Industry sources have indicated that mutual fund houses have received targeted inquiries from SEBI regarding these transactions.