Speaking at the Association of Mutual in India (Amfi) members summit in Mumbai on Tuesday, Securities and Exchange Board of India chairman Ajay Tyagi also added that, the industry as a whole needs to do its own analysis on a regular basis to avoid such situations in future.

In the last one year, debt funds have seen several mark downs due to the default or downgrades of various debt papers impacting the returns. “Such an impact was not just restricted to a few mutual fund schemes but led to a general erosion of trust of investors in debt schemes. Meanwhile, during the turmoil, concerns were also raised with regard to mutual fund exposure in debt and money market instruments having structured obligations or credit enhancements in various forms and complex structures,” said Tyagi.

Amfi, an association of asset management companies (AMCs) of all mutual funds in the country, on Tuesday discussed how the next phase of growth in the mutual funds segment could be achieved, implementing a seven-point agenda for the MF industry and through market expansion.

The Sebi chairman also said that the events in the last year, however, exposed the fault lines in the industry and showed that a credit event in even one issuer/group could have a contagion effect leading to liquidity risk across the market.

“There is a clear distinction between lending and investing. A mutual fund’s investment strategy needs to have required elements of safety as well as returns. While making an investment, the mutual funds have to necessarily take into account their mandate and organisational structure. Mutual funds do not have risk capital and are essentially pass through vehicles wherein NAV ought to reflect the correct value of assets held at any time. This is an important aspect which mutual funds should keep in mind while making debt investments,” added Tyagi.