MUMBAI: Tuhin Kanta Pandey, the chairman of the Securities and Exchange Board (Sebi), has urged mutual fund trustees to implement early warning systems that can detect anomalies and trigger timely interventions. He also called for their active engagement in establishing guardrails to safeguard the industry and investors.
Addressing mutual fund trustees here Monday, Pandey described them as the first-line of defence in ensuring the integrity of the systems and the processes related to valuation practices and risk management.
“When needed, trustees are empowered to act—to question, to escalate, and, if necessary, to intervene. This authority carries with it the moral duty to act decisively and fearlessly, to protect the interests of investors,” said Pandey.
He further urged them to independently test internal controls of asset management companies (AMCs), seek clarifications on compliance reports, and challenge assumptions where necessary.
Emphasising that trustees must keep pace with evolving areas such as derivatives, alternative assets, ESG (environmental, social, and governance) investing, and risk analytics, Pandey said specialised training in these areas is essential for effective oversight.
“Oversight must have depth—not just documentation,” he said, underscoring that the appearance of conflicts must be avoided or transparently disclosed to maintain credibility.
The Sebi chairman also outlined some measures taken recently to clearly delineate the roles of trustees and AMC boards. These include mandating independent evaluation and due diligence by trustees, while AMC boards are required to establish unitholder protection committees.
Further, AMCs must implement structured mechanisms to prevent market abuse, such as front-running, insider trading, and misuse of sensitive information, the chairman said, adding trustees are expected to verify these mechanisms to ensure they function both in spirit and substance,.
Highlighting the phenomenal growth of the mutual fund industry—assets under management reached Rs 75.6 trillion as of September, with 56 million unique investors—Pandey underscored trustees' role as custodians of investor trust.
“Trustees should not be passive recipients of regulatory reforms. You must engage actively by proposing workable guardrails, suggesting simplifications that do not weaken the safeguards, and bring wide experience during the consultation process,” the chairman said.
