Cracking the whip on the practice of mis-selling of mutual fund schemes, market regulator SEBI has decided to bring such activities under the ambit of fraudulent trade practices.

The move comes at a time when there are reports of rising instances of mis-selling of mutual fund products to customers.

Securities and Exchange Board of India (SEBI) has brought mis-selling of MF schemes under its norms on prohibition of fraudulent and unfair trade practices.

The SEBI has inserted an additional clause whereby mis-selling of MF schemes would be deemed to be a fraudulent trade practice.

In a notification issued on Tuesday, the regulator said that “mis-selling” would refer to sale of units of a mutual fund scheme by any person, directly or indirectly by making a false or misleading statement.

Among others, sales of a MF scheme by making a false or misleading statement or concealing material facts and associated risks or not taking reasonable care to ensure suitability of the scheme to the buyer, would be considered as mis-selling.

In this regard, the market watchdog has brought in amendments to SEBI’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.

They would come into force on the date of their publication in the Official Gazette.

The country’s mutual fund industry has over 40 players managing assets worth nearly Rs 7 lakh crore.

The SEBI, in recent times, has initiated a slew of measures for benefit of mutual fund industry, including provision for a new distributor cadre and incentives for reaching out to smaller cities.

Earlier in the day, C S Mohapatra, Advisor to Financial Stability Development Council (FSDC) at the Finance Ministry, said that mis-selling of products has “become synonymous with the financial sector“.

He was speaking at an event in New Delhi.

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