India’s market regulator on Monday tightened risk management rules for mutual funds, including specifying guidelines to spot, measure and report various risks, in a trial to shield the interest of investors in an exceedingly fast-growing industry. The new rules mandate the appointment of a chief risk officer, creation of risk management committees and maintaining metrics like investment risk, liquidity risk and credit risk for every scheme, the Securities and Exchange Board of India (SEBI) said.
The new framework comes a month after it barred Kotak Mahindra Asset Management, one in every of the country’s largest open-end fund managers, from launching any fixed maturity plans (FMPs) for 6 months and fined it for breaking rules
SEBI also barred Franklin Templeton in India in June from launching any new debt schemes for 2 years after it found “serious lapses and violations” at the firm when it decided to suddenly shut several schemes
Franklin has appealed against the choice, but agreed it’d not launch any new debt funds for the nowadays. In its new rules on Monday, SEBI provided detailed guidelines on the chance management roles for an asset management company’s board, trustees, chief military officer, chief investment officer, other senior officials and fund managers
The investment firm industry has grown rapidly in India, especially with interest from retail investors in systematic investment plans that allow investment of a set amount regularly in schemes. Assets managed by India’s open-end investment company houses have increased to about ₹ 36 lakh crore ($487.72 billion) in August from nearly ₹ 28 lakh crore a year earlier, in line with the Association of Mutual Funds in India (AMFI).
SEBI said fund houses need to adhere to the new risk management rules from January 1 and review their compliance once a year.