Sebi to re­duce mu­tual fund schemes by half

Cap­i­tal mar­kets reg­u­la­tor’s move is to en­sure as­set man­age­ment com­pa­nies have only one prod­uct of­fer­ing in each cat­e­gory

Mint Asia ST - - Inside - B Y J AY SHREE P. U PADHYAY

The Se­cu­ri­ties and Ex­change Board of India’s (Sebi’s) mu­tual fund ad­vi­sory panel has rec­om­mended strict def­i­ni­tions on how mu­tual funds are cat­e­go­rized, a move that might halve the num­ber of schemes of­fered by as­set man­agers cur­rently.

The cap­i­tal mar­kets reg­u­la­tor aims to en­sure that an as­set man­age­ment com­pany has only one prod­uct of­fer­ing in each cat­e­gory, said two peo­ple with di­rect knowl­edge.

The move will help in­vestors cut through the clut­ter of 2,000 in­vest­ment schemes and aid de­ci­sion mak­ing, said these peo­ple. At the end of Au­gust, 42 fund houses in In­dian man­aged Rs20.6 tril­lion.

The mu­tual fund ad­vi­sory panel has rec­om­mended that funds be broadly seg­re­gated into equity, debt, hy­brid and the­matic. In cat­e­gories such as equity and debt, there would be fur­ther sub-cat­e­gories such as large cap and small cap, said one of the two peo­ple.

Cur­rently, the cap­i­tal mar­kets reg­u­la­tor’s nomen­cla­ture rules for mu­tual funds loosely de­fine just two as­pects—whether a fund is open-ended or close-ended and whether it in­vests in equity or debt.

“The cat­e­gories and nomen­cla­ture de­vised by the panel is to en­sure that scheme names re­flect the na­ture of its in­vest­ments. If a fund is called a large cap fund then 80% of the money re­ceived will need to be in­vested in large cap stocks,” said the sec­ond of the two peo­ple cited ear­lier. “If some funds do not fall in the de­fined cat­e­gories, they will be shut.”

Sebi is look­ing to no­tify these by the end of the month or af­ter its board meets on 18 Sep- RE­MOV­ING DU­PLI­CA­TION Sebi’s move will help in­vestors cut through the clut­ter of 2,000 in­vest­ment schemes and aid de­ci­sion mak­ing tem­ber, this per­son added.

At an event or­ga­nized by in­dus­try lobby group Fed­er­a­tion of In­dian Cham­bers of Com­merce and In­dus­try on Wed­nes­day, G. Ma­halingam, a whole-time mem­ber at the cap­i­tal mar­kets reg­u­la­tor, said Sebi pro­posed to soon in­tro­duce rules for these merg­ers.

To be sure, some of the def­i­ni­tions which the mu­tual fund panel has rec­om­mended are cur­rently adopted by the in­dus­try. How­ever, there is no sanc­tity to in­vest­ment ob­jec­tives or names. For in­stance, some of the large funds houses are man­ag­ing two equity-linked sav­ings schemes or four monthly in­come plans or ex­actly the same kind of bal­anced funds.

“In many of these cases, these schemes are ex­actly same in their in­vest­ment pat­tern and na­ture. The only dif­fer­ence is the name. This of­ten ends up con­fus­ing the cus­tomer and he/ she might end up buy­ing the same scheme be­cause their names are dif­fer­ent,” said Manoj Nag­pal, chief ex­ec­u­tive of­fi­cer of Out­look Asia Cap­i­tal, a Mum­bai-based mu­tual fund ad­vi­sory firm.

Mu­tual funds are al­ready plan­ning merg­ers of schemes be­fore the axe falls.

“We have started op­er­a­tional­iz­ing merger plans as we are ex­pect­ing Sebi’s no­ti­fi­ca­tion any day. The ma­jor chal­lenge is to merge two very large schemes. In such a sce­nario, most fund houses are plan­ning to tweak the sim­i­lar schemes in terms of their in­vest­ment ob­jec­tive so that they can both sur­vive un­der de­fined nomen­cla­tures,” said an of­fi­cial of a top fund house who did not wish to be named.

Amend­ments to the in­come-tax act in the past two fis­cal years’s bud­gets will also make mu­tual fund merg­ers eas­ier.

In the bud­get for fi­nan­cial year 2017, the gov­ern­ment ex­empted scheme merg­ers from the cap­i­tal gains tax. Fur­ther, in the bud­get for this fis­cal, the fi­nance min­istry clar­i­fied that if an in­vestor chooses to exit a merged scheme, the date and cost of in­vest­ment of the orig­i­nal scheme will be con­sid­ered for tax­a­tion.

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