The Securities and Exchange Board of India (SEBI) has once again turned its attention to investor safety and long-term market growth. SEBI Chairman Tuhin Kanta Pandey on Friday issued a strong caution to mutual funds, asking them to be careful when investing in micro-cap companies. His remarks came just a day after SEBI unveiled plans to restrict short-tenure derivatives and introduce a regulated platform for pre-IPO shares.
Speaking at an event organised by the Association of Mutual Funds in India (AMFI), Pandey stressed that while diversification beyond blue-chip companies is necessary, mutual funds carry a responsibility to retail investors. He highlighted that micro-cap investments involve significant risks and require thorough documentation, transparency, and due diligence.
“Mutual funds are a retail product and they must safeguard investor confidence. Along with market risk, we must also be mindful of operational risks that can quickly undermine trust,” Pandey said.
Push for Women Investors and Financial Inclusion
A major part of his address focused on financial inclusion. Pandey pointed out that women investors currently account for only one-third of the mutual fund industry’s assets under management. To close this gap, SEBI is considering new incentives for first-time women investors. The regulator is also working on proposals to incentivise distributors who bring in new investors from smaller cities and towns.
“Financial inclusion cannot be called complete until women participate equally. By introducing additional benefits for first-time women investors and extending outreach in under-represented regions, we can deepen mutual fund penetration across India,” Pandey noted.
Tackling Fraud and Securing Data
The SEBI chief also raised concerns about growing instances of fraudulent redemption by impersonators. He urged asset management companies to act quickly and monitor evolving fraud patterns. He emphasised that as more investors interact digitally, safeguarding sensitive financial data must remain a top priority.
“Investors entrust us not only with their wealth but also with their personal information. Protecting that data is as important as protecting their money. Outsourcing operations may improve efficiency but it does not reduce accountability,” he said.
Pandey called on mutual funds to ensure vendor and partner agreements leave no room for data leakage and to strengthen systems against cyber threats.
Expanding Reach of Mutual Funds
Currently, less than five percent of India’s population invests in mutual funds, according to SEBI. This low penetration highlights the untapped potential in the sector. Pandey underlined that expanding investor participation in semi-urban and rural areas remains a priority, and SEBI will continue to facilitate measures that help the industry grow responsibly.
By balancing innovation with caution, SEBI hopes to protect investors while enabling broader participation in India’s capital markets. For retail investors, the message is clear—mutual funds remain an effective wealth creation tool, but due diligence and risk awareness are essential, especially when it comes to smaller, riskier companies.
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