A piping hot IPO market and a vibrant local mutual fund industry have kept India's economic story alive on the global stage this year. Suddenly, both appear to have been bruised, thanks to a share sale that some perceive as expensive.

MFs, which are custodians of ₹75 lakh cr of the common man's money, are at the receiving end of financial advisers on social media for bidding in Lenskart Solutions' IPO, which has also raised questions on governance and morals.

The belief that the outrage could lead to long-term damage to both - the IPO market and health of MFs - may be exaggerated, but it may be time to change some practices to enhance investor faith.

At the heart of the debate is whether MFs, as custodians of the common man's nest egg, should invest in a company that is not considered a fit investment case by some.

One unsettled question in finance is that there can be no definitive conclusion about what 'value' is. It gets trickier when fund managers have to take a call on prospects of a business that can be as uncertain as the weather.

Picking a stock in an IPO is even more challenging, and that is the reason even Warren Buffett has steadfastly stayed away from primary issues.

But MF managers, who are benchmarked against their competition daily, don't have that luxury.

While arguments for and against an IPO's pricing and actions of investors are being questioned, the vital element is that all of them are based on publicly disclosed facts mandated by regulation. The regulator has ensured disclosure, but what's missing is explanation.

It is not that MFs invest without proper due diligence. Every AMC has an army of researchers and managers who analyse investments threadbare. The missing link is their reluctance to publicly explain the reasons behind their decisions.

Just as the company that's raising funds must disclose its history and financials in detail, at times running into a thousand pages, MFs also disclose where they invest. But is that sufficient? Every major adverse development leads to changes in practices and regulations.

Indian MFs once discussed their investments in public, but much of that changed after the bursting of the tech bubble. As the hunt began to fix responsibilities, the regulator started a series of investigations into insider trading and stock price rigging. Some fund managers were made scapegoats.

Popular perception as well as regulatory belief then was that fund managers were influencing stock prices by talking about them in public fora, and the way to avoid distorting the market was not to talk about them at all.

Ever since, MF managers have begun to hide behind non-existent regulations and avoid talking about their investments. Can that even be remotely true, given the number of participants and the size of the market now?

Public discussions about a company by expert managers can not only help investors understand businesses and investing, but also help them notice red flags, if any, they had missed.

In the case of Lenskart, some funds invested and others did not. Public explanation of the rationale by both sections would have only enhanced the understanding of the broader investing tribe, but the silence is now fuelling conspiracy theories.

In Indian IPOs, the fund manager is not just driven by the valuation of that particular company but also by their chances of getting shares of the next good company headed to the stock exchanges.

With lead managers determining which fund gets the allocation, even if an asset manager is not convinced about an IPO, they're often forced to bid because the investment banker holds the key to whether they get a piece of the cake in the next issue that may be attractive. In many cases, funds bid out of compulsion, not conviction.

Will the industry voluntarily amend its practices and take up the duty of explaining its investment decisions - not just in IPOs but in other holdings as well?

Much of the transparency the Indian market has seen did not happen because of voluntary actions by participants but was driven by Sebi. In this case, too, the regulator must seek a change in disclosure rules.

Going beyond portfolio disclosures, the regulator should require asset managers to provide a concise summary of the rationale for their investments. These are readily available with AMCs and, with electronic communications, they don't cost much to share. The contribution to educating investors would be immense.

Furthermore, Sebi must conduct a study of the IPO market. The secondary market is well supervised and questionable practices are investigated and penalised. But the same may not hold for the primary market. It should conduct a thorough investigation and weed out practices that are distorting the market.

And the starting point could be ending discretionary allotments.