Why SEBI is going to take strict action against financial influencers? | Big news for the Mutual Funds investors.

 

Why SEBI is going to take strict action against financial influencers?

This is big news for those who invest in the Shares market and Mutual Funds and those associated with it. Government market regulator SEBI is reportedly going to take strict action against financial influencers. New strict rules can be brought to protect from the influence of financial influencers and people associated with them.

 

According to experts, SEBI's strictness, the market regulator SEBI will direct brokers and mutual funds houses to set a limit to the use of financial influencers in advertisements and marketing projects. The boom in retail investing in the equity market during the Covid-19 pandemic has led to a proliferation of financial influencers offering financial advice on social media platforms such as Instagram, Facebook, and YouTube.

 

SEBI fears that they may mislead investors. According to sources, the statement of an officer associated with SEBI is being seen on many websites. It is written that SEBI is asking registered businessmen and mutual funds with brokers to stop associating with financial influencers, who are giving misleading advice and misleading investors.

 

If you look at the report of the news agency Reuters, this step of SEBI is being seen as a proactive step to save retail investors from being misled. People are misled by financial advisors on social media like YouTube, Facebook, and Instagram. According to experts, this step of SEBI will benefit the common investors and they will be able to invest in the right way and avoid unintentional financial loss.

 

Recently, SEBI came into the most discussion these days. Ever since the case of Adani came to the fore. SEBI is also probing the Adani and Hindenburg case. A few days ago, SEBI had asked the Supreme Court for six more months to investigate Adani. SEBI told the court that it takes at least 15 months to investigate these suspicious transactions, but it will try to complete it in six months.

 

The 12 suspicious transactions mentioned in the Hindenburg research report are at first glance quite complex individuals. They need to be investigated in depth. The Supreme Court had also constituted a six-member panel in March to probe the matter. It was asked to examine the protection framework of the country. 

The Supreme Court had formed this committee while hearing the PIL (Public Interest Litigation). Now SEBI has asked for more time for investigation regarding this. Taking cognizance of the Adani and Hindenburg research report case, the Supreme Court entrusted SEBI with the responsibility of investigating the matter. 

The court has directed the market regulator to conduct an inquiry into whether there has been a violation of Section 19 of the SEBI regulations and whether there has been any manipulation of Adani stock prices. The court had said that other investigative agencies would also assist the SEBI support panel. After this, now the news of SEBI taking strict steps came to the fore. 

 

Big news for the Mutual Funds investors:

Mutual Funds have become increasingly popular among common investors over the years. Due to the risk present in the stock market, not everyone wants to invest money directly in the stock market. The same FD, small savings schemes, and other schemes of investment do not get the same returns that can be given to the investors by making big capital. 

Many types of options are available in Mutual Funds and trust in them has increased. But now the market regulator SEBI is preparing to bring a rule that will change the whole game. This can also have a strong impact on you as an investor. What is the new SEBI regulation, and how can it affect you? 

So the point is that SEBI is considering allowing Mutual Fund houses to charge fees based on the performance of their schemes. You must be aware that instead of managing Mutual Fund houses, you are charged a fixed fee. Now this fee is taken as a percentage of AUM i.e. Asset Under Management. Fees are depending on the fund size. 

There is also regulation regarding different schemes on this fee. The size of the mutual fund business in the country is ₹ 40, 00,000 crore and in such a situation, the new rule of SEBI will bring a big change in this entire business. At a time when the outperformance of active mutual fund schemes has weakened. SEBI's new rule can prove to be very important. 

Now in the schemes which are performing well, investors will have to pay more money to the investors as a performance fee. On the other hand, mutual fund houses will benefit from this and they will be able to recover more money from investors in schemes that give good returns. It is also important to know here that the complete details of this new rule of SEBI have not been revealed yet. 

Mutual Funds charge a fixed fund fee on any scheme or this fee ranges from almost zero to 2.25%. Mutual funds have some fixed costs. These include fees paid to registrars and transfer agents and custodian fees. Regular primary distribution charges have to be paid. SEBI will have to do a long wide exercise before bringing its new rule. 

SEBI will come out with a consultation paper and take stakeholders' feedback on it. Based on these suggestions, SEBI will come up with new rules. In such a situation, it is a big deal that SEBI can give freedom to fund houses to take more money from investors if a scheme performs better than its benchmark.

 

That is, if your scheme is giving more returns than its benchmark, then in the coming days some part of your profit may also go into the fund house's pocket and you are going to have the same effect. In such a situation, what things you have to look at now, is very important. First of all, you have to look at your scheme and its benchmark. 

Before investing money in any fund, you have to do this investigation very carefully. Not only this, but investors will also have to do peer comparisons. Suppose a scheme performs marginally better than its benchmark, then this scheme will be entitled to charge performance-based fees. On the other hand, it may be in another scheme of the same category. 

If you are performing well somewhere, then you will pay more fees. But the profit you get will not be that much. Most investors can understand the short term, but now you have to look at the long-term performance. That is, the thing is such that it can be considered good for investors. 

It is that to charge more fees, the fund manager will emphasize the good performance of the scheme and for this, they will also work harder. Although it also has a disadvantage. Fund managers may also take higher risk for better returns and this may further increase the risk appetite of the investors. 

Overall, it would be best to wait and watch for the time being. When SEBI will come out with its complete details, then only this new rule can be properly investigated. How did you like the information? Please do tell us by commenting, and don't forget to share.