MFs must work to regain lost public trust: Chidambaram

The trust of Indian investors in mutual funds has waned over the last few years due to promises of unrealistically high returns and this trust must be restored to make it an investment tool for the masses, union Finance Minister P Chidambaram said on Sunday evening.

"People still place enormous trust in the public sector banks, but the same level of trust is missing when it comes to mutual funds," Chidambaram said while speaking at the golden jubilee celebrations of UTI Mutual Fund in Mumbai.

The minister also stressed the need for promoting financial literacy and investor education by the mutual fund (MF) houses, leveraging technology like banks have done, to improve corporate governance and reach out to investors in smaller towns and cities.

He said that the Securities & Exchange Board of India (SEBI) was in the process of introducing new measures to make mutual funds more attractive, incentivizing plans to popularize MFs beyond the top 15 cities in the country, and creating awareness to increase the investor base.

"Recently, SEBI has made a number of changes to promote the mutual fund industry," Chidambaram said, adding that steps like raising the cap on investment for expanding into smaller towns and cities and moves towards investor protection by addressing the issue of mis-selling "had a positive impact on the mutual fund industry".

Urging the need for 'political consensus' in economic management to ensure stability and promoting growth, Chidambaram illustrated the example of UTI restructuring taken up in 2003.

The initial steps were taken by the former finance minister Yashwant Sinha of the Bharatiya Janata Party. Later, it was carried forward by his successor Jaswant Singh and now he (the current finance minister) had completed the process.

Similarly, the next government should follow similar approach towards key economic decisions including the one on putting in place the Indian Financial Code as recommended by the Financial Sector Legislative Reforms Commission (FSLRC), the finance minister said.

To mark the UTI Golden Jubilee, Chidambaram inaugurated 101 financial centres across the country.

The chairman of SEBI, U K Sinha, who is a former head of UTI Mutual Fund, described the UTI restructuring as "one of the most successful turnaround operations that went off seamlessly", but called for revisiting the multiple owner shareholding pattern in the company.

UTI MF manages assets worth Rs71,357 crore, including nearly half in equity, much higher than the industry average of 22 per cent, and with over a quarter of its assets coming from smaller cities and towns, he pointed out.