No need for Sebi to comment on small, mid-cap slump: Madhabi Puri Buch

Speaking at an event in Mumbai, the regulator drew from her statement of March 2024 where she had warned investors about the potential bubbles in the small and mid-cap segments, and stressed that it might not be appropriate to allow froth to keep building up. She had asked mutual funds to frame a common policy to protect investors, at a time of turbulence in an overheated small and mid-cap space.

Sebi had also asked for results of stress tests from mutual fund trustees, stating the time it would take to liquidate portions of investors’ portfolios. “At the point in time when the regulator felt the need to make a statement about it, the statement was made”, Buch said, “Today, the regulator feels no need to make an additional statement”.

Stock prices of small- and mid-cap companies, which outpaced large-caps for most of FY24, have been faltering amid sustained sell-off sparked by growth slowdown and trade tensions. The Nifty Small Cap 100 index has lost about 18% of its value so far in 2025, while the Nifty Midcap 100 index has dropped 13%. The two indices are each down close to a quarter since their September peaks.

AMFI’s new initiatives and Sebi’s regulatory approach

Buch was speaking at an event organised by the Association of Mutual Funds in India (AMFI), which launched three strategic initiatives – Chhoti SIP – Sachetization of Mutual Funds, Tarun Yojana, and MITRA – Mutual Fund Investment Tracing and Retrieval Assistant — to advance financial inclusion and simplify, trace and retrieve forgotten investment.

On whether these micro-SIPs would be restricted to certain funds, like large-cap schemes where capital preservation is higher, Buch noted that the mutual fund industry in India is highly mature, which does not need instructions. “In a mature industry, every player in the system knows that when you are bringing fresh investors into the market, you need to make sure the product is suitable for that investor, does not run away after short period, but stays for long. That maturity already exists in the MF ecosystem. So, there is no need for a regulator to have any view in the matter,” Buch said.

The conversation also touched upon the proliferation of mutual fund schemes, particularly thematic funds, which have grown in number due to the absence of caps. While acknowledging the issue, Buch explained that Sebi’s approach was to address the root cause – the arbitrage between normal schemes and NFOs. “That arbitrage took many forms. There was an incentive to launch more and more New Fund Offers (NFOs)”, she said.

In December 2024, Sebi announced that fund managers must deploy capital collected during an NFO by asset asset management companies (AMCs) as per the specified asset allocation of the scheme, typically within 30 days. If funds are not deployed within the specified timeline, investors will have the option to exit the scheme without paying an exit load, the regulator said.

Responding to concerns regarding mutual fund distributors and their potential wrongdoing, Buch emphasized that distributors are agents of the AMCs, not independent entities. “If there is any wrongdoing by a mutual fund distributor, we will hold the AMC accountable and responsible,” she said.

In response to a query about new promotional schemes tied to SIPs, such as incentives like Swiggy Money for completing a certain number of SIPs, Buch was clear. “Whenever a product of this nature is promoted, we have one cardinal rule – you cannot give any assurance of return,” Buch asserted. “So nobody can say that this is how much you will get at the end. If you ask us is that allowed, it is not allowed.” She, however, clarified that promotional schemes of any kind are a matter of marketing, sales, commercial arrangements, and Sebi never gets into those.

Financial literacy and investor protection

Apart from the Chhoti SIP, which allows a ₹250 systematic investment plan to widen and popularise mutual fund investments, Buch also launched ‘Tarun Yojana’, which seeks to foster promote financial literacy and foster a culture of saving and investing among children.

In this AMFI initiative, teachers from selected schools will be trained to become financial literacy ambassadors. They will provide lessons on fundamental financial concepts and investing to students. At the end of the program, students will be tested on their financial knowledge.

The top 20% of students will be rewarded with investments made in their name through SIPs in a designated mutual fund scheme. Each student will receive an SIP of ₹100 per month for 24 months, totaling ₹2,400. The SIPs will be locked in for 24 months after the final installment, allowing students to witness firsthand the benefits of investing. Buch mentioned that the government intends to invest ₹2,000 crore over a period of 10 years in this initiative.

The Yojana will be rolled out in a pilot phase that will cover over 5,000 students from grades 8 and 9 at approximately 45 government and government-aided schools across nine districts. If successful, the initiative will be expanded in phases to reach schools nationwide.

The MITRA initiative seeks to help investors and their legal heirs to identify and recover inactive or forgotten mutual fund holdings.