SEBI cracks down on malpractice in MF sales

In another crackdown on dubious selling practices in the capital market, the Securities and Exchange Board of India (SEBI) has decided to bring mis-selling of mutual fund schemes under the ambit of fraudulent trade practices.

Reports of mis-selling MF products have been on the rise lately. SEBI has now decided to bring this practice under its lens by prohibiting fraudulent and unfair trade practices.

In a notification issued on Tuesday, the market regulator has inserted an additional clause in its regulations, whereby mis-selling of MF schemes would be deemed to be a fraudulent trade practice.

SEBI has decreed that "mis-selling" would refer to sale of units of a mutual fund scheme by any person, directly or indirectly, by making a false or misleading statement.

Among other clauses, sales of a MF scheme by making a false or misleading statement or concealing material facts and associated risks or not taking reasonable care to ensure suitability of the scheme to the buyer would be considered as mis-selling.

SEBI has brought in amendments to its Prohibition of Fraudulent and Unfair Trade Practices in its securities market regulations.

The new rules would come into force on the date of their publication in the Official Gazette.

The country's mutual fund business comprises over 40 companies managing assets worth nearly Rs7,00,000 crore.

C S Mohapatra, advisor to the Financial Stability and Development Council (FSDC) of the finance ministry, said at an event in Delhi today that mis-selling of products has "become synonymous with the financial sector".