SEBI changes risk management framework for mutual funds

The matter was discussed in the Mutual Fund Advisory Committee (MFAC) based on the inputs received from the industry and the recommendations of the MFAC have been accepted by the market regulator in the Risk Management Framework (RMF) for MFs.

Kotak Mahindra Asset Management, one of the country’s largest mutual fund managers, has been barred from launching any fixed maturity plan (FMP) for six months and fined for breaching norms.

Sebi had in June barred Franklin Templeton from launching any new loan schemes in India for two years after it found “serious defaults and violations” in the firm, when it decided to abruptly discontinue several schemes. Franklin has appealed the decision, but has agreed that it will not launch any new debt funds for the time being.

The mutual fund industry has grown rapidly in India, especially with interest from retail investors in systematic investment schemes that allow regular investments of a fixed amount in the schemes.

The assets managed by the Mutual Fund Houses of India have risen to approx. ₹36 trillion ($487.72 billion) in August ₹28 lakh crore a year ago, according to the Association of Mutual Funds in India (AMFI).

The said framework will be effective from January 01, 2022, and asset management companies (AMCs) should self-assess their RMFs and practices and come up with a roadmap for implementation of the framework.

SEBI mandates that AMCs should set up an RMF for their mutual fund business and this would be an integral part of the mutual fund’s processes and governance framework, both at the operational and strategic level.

According to SEBI, the objectives of the RMF should be to assist the management and the board of directors of both the AMC and the trustees to demonstrate high standards of due diligence in day-to-day management, promote proactive management and early identification of risk.

The market regulator has also said that risk management will be an independent and exclusive function of the AMC.

“At least one CXO level officer should be identified to be responsible for risk management of specific functions of the AMC/Mutual Fund. For example, there should be dedicated Risk Officers for various key risks such as investment risk (Chief investment officer), compliance risk (by chief compliance officer), operational risk (by chief operating officer or similar officer responsible for overseeing related functions), cyber security (by chief information security officer),” in the circular issued by the regulator. Having said.