Many of you may have encountered horrendous experience of financial products being mis-sold, in times where financial innovation is galore and competition in the financial services industry is severe. Fragmented knowledge on financial products on part of investors often causes this mis-selling to occur and this evil has been prevalent since quite some time now, especially in case of mutual funds and insurance products.
But now to crack the whip on the practice rampant mis-selling in mutual funds, the Securities and Exchange board of India (SEBI) has decided to to bring such activities under the ambit of fraudulent trade practices. The capital market regulator has recently brought in an amendment to the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, to include mis-selling of units of a mutual fund scheme under its ambit.
Mis-selling of a mutual fund scheme under the aforesaid regulation will mean any sale of units of a mutual fund scheme by any person, directly or indirectly, by:
making a false or mis-leading statement, or
concealing or omitting material facts of the scheme, or
concealing the associated risk factors of the scheme, or
not taking reasonable care to ensure suitability of the scheme to the buyer
Thus now you could book your mutual fund distributor /agent under a case of fraud, if the he's "mis-selling" a mutual fund scheme to you.
This move has come at a time, where there are rising numbers of cases of mis-selling of mutual fund products to investors. As investors, it is important to be responsible while making an investment decision, because eventually it could be difficult to prove cases of mis-selling.
I also think that the industry should come-up with less complicated products which are unique in nature and not merely duplicate product by proffering fancy names. In their attempt to widen the reach and penetrate into the markets, the mutual fund industry should impart financial education which can be engaging and interesting for investors
Best Regards
Prakash Nair . 
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