The Securities and Exchange Board of India (Sebi) is taking significant steps to combat misselling in the mutual fund industry by developing an artificial intelligence (AI) tool. Sebi Chairperson Madhabi Puri Buch recently highlighted the need for such technology, citing an incident where a 90-year-old individual was sold a product with a seven-year lock-in period. The AI tool aims to identify and flag similar cases, ensuring that investors are protected from misselling practices.
Buch emphasized the complexity of the problem and acknowledged the intelligence required to detect misselling. The algorithm being developed will possess the necessary tools to spot suspicious transactions, such as the case of selling long-term products to elderly individuals. While mutual funds currently submit data on regulatory compliance periodically, the introduction of the AI tool will strengthen the oversight process.
Sebi recognizes that there may be instances of misselling that go unnoticed under the existing rule-based supervision. The implementation of AI technology will bridge this gap, allowing for better monitoring and safeguarding the interests of investors. By analyzing vast amounts of data, the AI tool will be equipped to identify irregularities and take appropriate action.
Furthermore, Buch expressed Sebi’s interest in introducing fractional ownership of shares in the market. However, the current legal framework restricts this innovation. Buch clarified that until there are amendments not only to the Sebi Act but also to the Companies Act, fractional ownership cannot be permitted.
Sebi’s commitment to harnessing AI demonstrates its dedication to investor protection and market integrity. The development of this AI tool will play a crucial role in curbing mutual fund misselling and upholding the trust of investors.
Frequently Asked Questions (FAQ)
1. What is misselling in the mutual fund industry?
Misselling refers to the practice of selling financial products, such as mutual funds, in a misleading or inappropriate manner, not aligning with the investor’s needs and risk profile.
2. How will Sebi’s AI tool help combat misselling?
Sebi’s AI tool will utilize algorithms to analyze data and flag potential instances of misselling by mutual fund distributors or agents. It will assist in detecting irregularities that could go unnoticed through traditional rule-based supervision.
3. Why is fractional ownership not currently allowed in India?
The current legal framework, including the Sebi Act and the Companies Act, restricts the introduction of fractional ownership of shares in the Indian market. Amendments to these Acts are required to enable this innovative ownership structure.