SEBI chief warns mutual funds against risky bets in microcaps and low-rated debt

SEBI Chairman Tuhin Kanta Pandey has cautioned mutual funds against excessive exposure to micro-cap stocks and low-rated debt securities, stressing the need for stronger due diligence and transparency in investment decisions.

Speaking at an event organised by the Association of Mutual Funds in India (AMFI) to mark its 30th anniversary, Pandey said that while diversification beyond blue chips is important, fund houses must avoid risky bespoke deals and ensure proper documentation. He warned that as fraudsters become “more creative,” asset management companies (AMCs) must remain vigilant, respond swiftly to fraud, and actively track emerging patterns to prevent recurrence.

The SEBI chief also pressed for greater accountability in outsourcing, urging AMCs to take full responsibility for third-party vendors to prevent data leakages and misuse. On the investor protection front, he said SEBI’s focus is on widening participation, with new proposals to incentivise distributors for attracting first-time investors from Tier-II and Tier-III towns, as well as women investors, to boost financial inclusion.

Pandey revealed that SEBI is reviewing the categorisation of mutual fund schemes to allow more flexibility, avoid overlaps, and give investors better clarity. The regulator has already scrapped over 50 routine reporting requirements for AMCs to reduce compliance burden and is working on a broader simplification of mutual fund regulations.

Closing his address, Pandey urged the industry to “innovate with responsibility,” balancing creativity with caution and a strong commitment to investor trust.