Debt funds, no substitute for fixed deposit

Retail investors need to be educated on the risk dimension it carries, says SEBI’s Mahalingam

Asserting that “debt funds” are no substitute for “fixed deposits” in a bank, capital market regulator SEBI on Monday said that perception of “debt funds” need to be looked from investor education now.

Addressing an NCAER organised workshop on “Investor Education and Protection in the Securities Markets”, Mahalingam said that debt funds are far removed from a fixed deposit, and it should be driven into the minds of retail investors that debt funds carry with themselves a risk dimension and they are not a substitute of fixed deposits.

This is yet not driven home at all. All regulators and government must come together to sensitise retail investors that anything instrument they get into the capital market is fraught with risk, Mahalingam said.

His remarks are significant in the backdrop of the Franklin Templeton Mutual Fund case that had grabbed headlines in the recent months due to the fund house winding up six debt mutual fund schemes without the unit holders consent. Franklin Templeton Mutual Fund had closed six debt mutual fund schemes on April 23, citing redemption pressure and lack of liquidity in the bond market.

Mahalingam noted that “debt funds” have so far been marketed to retail investors as a substitute for “fixed deposit” in a bank.

On the way ahead, Mahalingam said that entire investor education needed to be woven around “Safety, Liquidity and Returns” (in the particular order itself). “Let not the order be reversed to return, liquidity and safety. Unfortunately, we find many investors go through return, liquidity and safety to forget the safety of their investments completely. That’s a reason why many investors get caught in Ponzi schemes, fly by night operators and all that. If misselling has to be avoided in the system, then the order has to be Safety, Liquidity and Return”, he said.