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Press Release

It is noticed that an unsubstantiated campaign is made through hoardings and press reports against certain mutual funds making baseless allegations about the performance of mutual fund schemes. This is in the wake of substantial fall in the stock market prices especially the technology stocks resulting in the fall in NAVs of equity schemes of mutual funds.

Working Of Mutual Funds And Their Performance

Mutual Funds Function Within Strict Regulatory Framework

Viewing The Mutual Fund Industry In The Right Perspective


Working Of Mutual Funds And Their Performance

It needs to be clarified that mutual funds invest their funds in capital market instruments such as shares, debentures, bonds and money market instruments and therefore the net asset value of such investments will reflect the market values of underlying assets. These market values fluctuate and therefore the net asset values of the mutual fund schemes also fluctuate.

All the capital market instruments have varying degrees of risk, the degree of risk being the highest in equities and the risk factor is highlighted in the respective offer documents as well as in the abridged offer documents. The investor therefore is in the full knowledge and understanding of the risks involved in various schemes. As per SEBI regulation all mutual funds disclose their portfolio periodically and all open-ended funds offer exit option to investors at NAV based price.

In the current year, the share market is passing through a bear phase with prices falling across the board and steeply in the technology scrips. Reflecting this fall in share prices, the NAVs of most of the equity schemes in general and of the technology funds in particular have also fallen. This fall in the NAVs should therefore be viewed in the context of the fall in the share prices, a phenomena which is world wide today. The fall in NAVs not only affects the investors but it has an impact on the fees and earnings of the investment managers also.

It may be recalled that the mutual funds have given good returns while the market was in the upswing and even today, the non-equity schemes which account for about 60 percent of total assets under management provide competitive rates of returns.

Mutual Funds Function Within Strict Regulatory Framework

The Association of Mutual Funds In India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework.

The different entities such as the Mutual Fund, the Asset Management Company and the Custodian operate as per the provisions of the SEBI Mutual Fund Regulation 1996 and the rules and guidelines issued by SEBI. Each of these entities has independent Boards of Directors and separate auditors.

SEBI keeps a close watch on the mutual funds through periodical reports and every three months, each mutual fund submits to SEBI a report conforming compliance with regulatory provisions and mutual funds are required to record their investment decisions. Any deficiency or non-compliance is dealt with suitably by SEBI.

Every year, each mutual fund is inspected by SEBI and such inspection is both a detailed scrutiny of operations and a rectification exercise. Thus, the mutual funds are strictly supervised and regulated entities and the regulatory provisions match with international standards.

AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

Viewing The Mutual Fund Industry In The Right Perspective

The mutual fund industry is a fast growing segment of the Indian Financial Market and it provides a variety of schemes to suit the needs and risk return profile of different categories of investors who are kept completely informed regularly through periodical reports and statutory disclosures.

AMFI as the umbrella body of the mutual fund industry which has Unit Trust of India and all mutual funds as its members would like to reiterate that investors in mutual fund schemes should not be influenced much less guided by any misplaced and patently wrong propaganda being carried out in some quarters.

If any person or organisation has any specific complaint about any mutual fund, they are requested to approach SEBI, which is the regulatory authority for mutual funds.

August 21, 2001

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