New Delhi, Aug 22 (PTI) Sebi chairman Tuhin Kanta Pandey on Friday cautioned the mutual fund industry that beyond market-linked investment risks, operational risks such as fraudulent redemptions by impersonators pose a growing threat to investor confidence.

He stressed the need for heightened vigilance, urging asset management companies (AMCs) to respond swiftly and track evolving fraud patterns as perpetrators become more sophisticated.

While there is a need to diversify beyond the blue chips, he noted, mutual funds as a retail product should exercise caution while investing in micro-cap or debt papers in bespoke deals.

According to him, maintaining proper documentation for such investment decisions ensures transparency and sound due diligence.

He was speaking at an event organised by the Association of Mutual Funds in India (Amfi).

Reiterating the need for vigilance, Pandey said, "Beyond investment risks, we must also be mindful of operational risks that can undermine investor confidence. One such concern is the menace of fraudulent redemptions by impersonators. And as fraudsters grow more creative, we must be more vigilant.

"Each time such a case is detected, AMCs must act promptly and monitor the evolving patterns in such practices," he said, adding that such modus operandi may be shared across AMCs and qualified Registrars and Transfer Agents (QRTAs) to prevent recurrence of such cases.

Pandey also emphasised the importance of financial inclusion and said Sebi is planning to introduce additional incentives for investments by first-time female investors.

"Financial inclusion will remain incomplete unless women are equally represented. We are thus also envisaging to introduce an additional distribution incentive for investments from first-time women investors," he said.

He added that Sebi is taking a series of measures to facilitate and encourage the industry, and one such recent proposal is to incentivise distributors for investments from first-time individual investors in B30 cities (tier 2 and tier 3 cities).

The move, he said, will not only bring new participants into the fold but also extend the reach of mutual funds into under-represented regions, contributing to deeper financial inclusion.

To provide greater flexibility for product innovation, improve clarity and address the issue of overlap in the portfolio of schemes, Pandey said Sebi is reviewing the categorisation of mutual fund schemes. Based on the feedback received from the consultation process, next steps will be taken, he added.

"These measures are expected to facilitate the industry to become more transparent and investor-friendly," the Sebi chairman said.

Recently, Sebi, as part of its ease of doing business and compliance simplification measures, has reviewed reports and filings submitted by mutual funds. Based on the review, the regulator has decided to discontinue the requirement of filing over 52 reports, notices and addendums with it by the AMCs.

Going ahead, Pandey said, over the next few months, the regulator will also be working towards a comprehensive simplification of mutual fund regulations. The aim is to ease compliance for the industry while continuing to safeguard investor interest.

Speaking at the same event, Sebi Whole Time Member Amarjeet Singh also called on the mutual fund industry to focus on responsible growth while upholding governance, transparency and ethical conduct.

Highlighting opportunities for expansion, he said there is enormous scope to expand the investor base further with the help of new products such as Specialised Investment Funds and deeper digital penetration.

At the same time, Singh cautioned against chasing scale at any cost.

"We must scale responsibly and in the right manner. A strong culture of ethical behaviour is the best safeguard against the lure of quick wins," he said, stressing that AMCs must demonstrate their commitment to fair and ethical practices to inspire the trust of regulators and stakeholders.

He also noted that the mutual fund sector is facing intensifying competition, with mounting pressure to innovate, grow assets under management (AUM), and deliver superior returns.

"In such an environment, it can be tempting to chase growth at any cost. Rules and regulations, therefore, play a very vital role in providing the necessary guardrails that protect investors and ensure discipline," he said. PTI IAS SP HVA

Fraudulent redemptions risk: regulator urges AMCs to tighten controls and proposes incentives to boost women investors. Sebi warns of rising operational risks-notably fraudulent redemptions by impersonators-and directs AMCs to strengthen detection, promptly act, share evolving fraud patterns with AMCs and qualified registrars and transfer agents, and maintain proper documentation and due diligence. Concurrently, Sebi proposes targeted distribution incentives for first time women investors and first time investors in B30 cities, is reviewing mutual fund scheme categorisation to reduce overlap and foster product innovation, and is simplifying filing and compliance requirements to ease industry compliance while protecting investor interests.