Mutual Funds have emerged as an important segment of financial markets and so far have delivered value to the investors. But no industry can flourish without a proper regulatory mechanism in the place. SEBI has played a vital role in regularizing the mutual fund business. From time to time it has tried to plug the loopholes prevailing in the system and safeguard the interest of investor who has been the backbone of this unprecedented growth. For instance very recently it disallowed the open ended schemes from charging initial issue expense of 6% from scheme’s NAV and amortize it over a period of five years. This was a favorable move and much sought by long term investors who earlier have been the victim of bearing initial issue expenses despite staying with the fund. Now with the new regulation in place expenses will be rightfully borne by all the investors, be long term or short term. And that was not the end; with latest set of proposed guidelines it is planning to put a full stop on the new fund offer rage. The mutual funds had gala time with the new schemes. Retail investors showed tremendous interest in the new fund offers which is evident from the number of funds that have been launched in last couple of years and the record collections they have witnessed. In the current year itself mutual funds raised Rs 52,637 crores through new fund offerings.

The funds houses were scrambling to launch new schemes to take the advantage of burgeoning equity markets and in due course several schemes were launched with same features. But now any new fund offering would require trustees to certify the schemes and ensure that are just not the replica of the existing schemes and the ambit is not already covered by their existing basket of funds. And even if there is any readjustment to the existing fund including investment strategy in that particular fund, then SEBI would reserve the right not to clear the offer document. SEBI has said that minor variations to the scheme would not be allowed but the hitch is it would be difficult to justify whether new scheme is unique from the older schemes. Due diligence in launch of new schemes is indeed a positive move and will force the mutual funds and distribution houses to emphasize on the existing funds. The new fund launches have no doubt slowed down due to unfavorable market conditions and amortization of issue expenses but it is yet to be seen how ethically mutual funds follow the norms and how effectively market regulator implements it.
In another attempt stressing on the need of greater accountability it intended to bring the fund distribution business under a regulatory framework to prevent some of the malpractices still present in the system. The fund distribution needs to be set right as mutual fund business is primarily distribution driven and a strong distribution network could be of great help in expanding the reach and boost investor confidence.

The mutual funds industry has grown by leaps and bounds in last couple of years. Following the strengthening of regulatory framework there is now greater transparency and credibility in the functioning of mutual funds and has been successful in regaining investor’s faith. But to sustain the momentum it should start focussing on the areas where greater accountability and transparency could propel the industry towards a new growth trajectory. As of now big challenge for the mutual fund industry is to mount on investor awareness and to spread further to the semi-urban and rural areas.

These initiatives would help towards making the Indian mutual fund industry more vibrant and competitive. To make this happen it calls for a greater role not only part of the regulator but also on industry and distributors and ensure that investor confidence is maintained through consistent performance and best business practices.