SEBI Chairman Urges Mutual Fund Trustees to Adopt Robust Early Warning Systems

Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has issued a strong directive to mutual fund trustees regarding investor protection. Speaking at the Leadership Dialogue for Trustees of Mutual Funds on Monday, Pandey emphasised trustees' crucial role as the first line of defence in the mutual fund ecosystem.

He urged trustees to move beyond passive compliance and adopt proactive measures to safeguard investor interests. The chairman's comments come amid rapid growth in the mutual fund industry and increasing complexity in financial products.

Trustees as First Line of Defence

Pandey positioned trustees as fundamental pillars in maintaining system integrity and investor confidence. He described trustees as “the backbone of investor confidence” with responsibilities extending far beyond ceremonial duties.

The SEBI chairman emphasised that their role is “fiduciary, moral, and institutional, demanding continuous engagement and accountability.” He stressed that trustees must not remain passive recipients of SEBI's reforms but actively engage in safeguarding investors through practical interventions.

Early Warning Systems and Intervention Authority

The regulator highlighted the critical need for sophisticated monitoring mechanisms within mutual fund operations. Pandey stated, “Trustees must ensure robust early warning systems - mechanisms that detect anomalies, track exceptions, and trigger timely interventions.”

He reinforced trustees' authority to “act – to question, to escalate, and, if necessary, to intervene” when detecting irregularities. This power carries what he described as “the moral duty to act decisively and fearlessly to protect the interests of investors.”

Expanding Oversight in Emerging Areas

Trustees must rapidly adapt to evolving financial landscapes and complex investment products. Pandey specifically urged attention to “derivatives, ESG investing, alternative assets, and risk analytics” as priority areas for enhanced oversight.

He noted that “continuous learning and specialised training are now indispensable for effective oversight” in today’s dynamic market environment. As mutual funds expand into “passive funds, international exposure, tokenised assets, and AI-enabled portfolio management,” trustees must balance innovation with integrity.

Industry Growth and Regulatory Initiatives

The mutual fund industry has demonstrated remarkable expansion over the past decade. Pandey revealed that sector assets under management have grown sixfold “from around ₹12 lakh crore to ₹75.6 lakh crore as of September 2025.”

Unique mutual fund investors have increased sharply, “from about 1 crore a decade ago to over 5.6 crore currently.” Monthly SIP inflows have surged “from about ₹3,000 crore in April 2016 to over ₹28,000 crore currently,” indicating strong retail participation.

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Conclusion

SEBI's strong message to mutual fund trustees underscores the regulator's focus on enhancing investor protection mechanisms. The call for robust early warning systems reflects growing concerns about detecting irregularities in increasingly complex financial products.

Trustees' expanding role in overseeing new investment frontiers requires continuous skill development and proactive engagement. As the mutual fund industry continues its rapid growth, effective trustee oversight remains crucial for maintaining investor confidence and market integrity.

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