Lok Sabha Question No. 3449 (UNSTARRED), answered on 2019-07-15
Subject: Irregularities in Mutual Funds
Ministry: FINANCE
Asked by: Giridhari Yadav, Rama Devi

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 3449 TO BE ANSWERED ON MONDAY, JULY/ ASHADHA 24, 1941 (SAKA) I5th\_

## IRREGULARITIES IN MUTUAL FUNDS

## 3449. SHRI GIRIDHARI YADAV SHRIMATI RAMA DEVI

## QUESTION

Will the Minister of Finance be pleased to state:

- (b): if so, the details thereof;
- (a): whether any irregularities in mutual funds have been reported to the Government during the last three years;
- (c): the details of the rules under which action is taken against the irregularities in the said funds;
- (e): if so, the details of the outcome thereof along with the reaction of the Government thereto?
- (d): whether any review has check irregularities in mutual funds during the last three years; and

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI ANURAG SINGH THAKUR)

(a), (b) & (c): As per the Securities and Exchange Board of India (SEBI) Act, 1992, Mutual Funds are regulated by SEBI as per SEBI (Mutual Funds) Regulation, 1996. SEBI has informed that; in its regulatory oversight which includes  inspections as well as off-site supervision, it has   noticed various  irregularities with  respect to the functioning of Mutual Funds like failure to identify and appropriate all the expenses in the individual schemes a5 per the regulatory requirements, instances of borrowing for purposes other than those allowed under Mutual Fund Regulations;   failure to carry out   valuation of investments   made by its   scheme(s) in  accordance with the investment valuation norms specified in Eighth Schedule; instances of close ended schemes investing in assets which had  maturity beyond the maturity of the scheme; non-adherence to sectoral  limits for debt-oriented schemesresulting in concentration of risk, etc.

Based Regulations, 1996 and Circulars issued thereunder; have been taken and reported in the SEBI Annual Reports

1. During 2016-17, 37   warning letters and 35   deficiency letters were issued to Mutual Fundsl Asset Management Companies (AMCs) while Adjudication proceedings Were initiated against three Mutual Funds
- ii. During 2017-18, 17 warning letters and 15 deficiency letters were issued to Mutual Fundsl AMCs and two deficiency letters were issued to the Trustees of Mutual Funds
- iii.  During 2018-19, 47 warning letters and 24 deficiency letters were issued to Mutual Funds/AMCs and two warning letters were issued to Trustees of Mutual Funds while, Adjudication proceedings were initiated against five AMCs, four Trustee Companies and one CEO of AMC
4. (d) & (e): SEBI; in consultation with the Central Government, on a continuous basis examines various issues concerning mutual funds and reviews the regulatory mechanism to enhance transparency and disclosures, reduce regard during the last three Financial years like mandating disclosure of performance related information in Mutual  Fund advertisements, enhancing fund governance for mutual funds, rationalization of Total Expense Ratio, normg for addressing the issue of potential conflict in case of shareholding and governance of Mutual Funds,  categorization   and rationalization of  Mutual Fund Schemes; Security and cyber   resilience framework of Mutual Funds/Asset Management Companies etc. cyber