Amfi to ask Sebi to re­con­sider new mu­tual fund reg­u­la­tions

Mu­tual funds say clas­si­fi­ca­tion reg­u­la­tions lim­it­ing their abil­ity to pro­duce prod­ucts, may im­pact risk man­age­ment

Mint Asia ST - - News - B Y J AY SHRE E P. U PADHYAY

The As­so­ci­a­tion of Mu­tual Funds in In­dia (Amfi) will ask the cap­i­tal mar­kets reg­u­la­tor to re­con­sider its new norms on mu­tual fund clas­si­fi­ca­tion, said two peo­ple with di­rect knowl­edge of the mat­ter.

Fund houses are com­plain­ing that the new norms are lim­it­ing their abil­ity to offer prod­ucts within the sug­gested clas­si­fi­ca­tion and are likely to im­pact risk man­age­ment, these peo­ple said.

On 6 Oc­to­ber, Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) had asked fund houses to clas­sify their schemes un­der five broad cat­e­gories to cut through the clut­ter of sim­i­lar plans and help in mak­ing bet­ter de­ci­sions.

In­dia’s mu­tual fund in­dus­try has close to 2,000 schemes and man­ages Rs21 tril­lion in as­sets.

An email sent to a Sebi spokesper­son was not an­swered till press time on Mon­day, 6 Novem­ber.

Amfi chair­man A. Bala­sub­ra­ma­niam, too, did not re­spond to calls seek­ing com­ment.

“The big­gest hur­dle is the re­stric­tion of mar­ket cap­i­tal­iza­tion for equity funds that will limit choice of stocks,” said the chief ex­ec­u­tive of a mid-sized fund house, one of the two peo­ple cited ear­lier.

Sebi’s new norms pre­scribed that an equity large cap fund would need to con­sist of at least 80% large cap stocks.

Large cap stocks are de­fined as the top 100 com­pa­nies in terms of mar­ket cap­i­tal­iza­tion.

For a mid cap equity fund, at least 65% of the funds need to be in­vested in mid-cap stocks. These are stocks that rank be­tween 100-250 in terms of mar­ket cap­i­tal­iza­tion.

“This stric­ture may limit our picks and in­crease the over­all risk in the fund,” said a fund man­ager, the sec­ond per­son cited ear­lier. Both peo­ple wished to re­main anony­mous.

“Funds houses are in­di­vid­u­ally ap­proach­ing the reg­u­la­tor on their in­ter­pre­ta­tion of rules and con­cerns. Af­ter get­ting a feed­back from all the fund houses Amfi will send a for­mal com­mu­ni­ca­tion to the reg­u­la­tor,” said the first per­son cited ear­lier.

An­other con­cern for fund houses is on the fate of funds with a good track record.

Ac­cord­ing to the Sebi cir­cu­lar, ev­ery fund house can have one fund in each sub-cat­e­gory to en­sure no du­pli­ca­tion. The five broad cat­e­gories were fur­ther finely di­vided into 36 dif­fer­ent scheme cat­e­gories such as Div­i­dend Yield Equity Fund, which would focus on div­i­dend yield­ing stocks.

Equity funds are al­lowed to have 10 sub­cat­e­gories such as large cap, small cap, mid­cap and so forth. Debt funds have 16 sub­cat­e­gories and hy­brid funds (which in­vest in equity and debt) six.

“There are cases where a fund house has two sim­i­lar look­ing schemes and both of them have a good track record. Fund houses are con­sid­er­ing to tweak them as shut­ting them down or merg­ing them will cre­ate a fund with as­sets too large to man­age,” said the fund man­ager cited ear­lier.

But this ar­gu­ment is not be­ing ac­cepted at least by some ex­perts who say that the new norms pro­vide enough room for risk man­age­ment and flex­i­bil­ity.

“The norms pro­vide enough lee­way and have room for flex­i­bil­ity for a solid port­fo­lio. The in­dus­try in­stead of push­ing back should think of im­ple­ment­ing these norms in let­ter and spirit. The norms were pre­scribed ... af­ter in­dus­try con­sul­ta­tion. So, in­dus­try rais­ing the con­cerns later seems in­cor­rect,” said Manoj Nag­pal, chief ex­ec­u­tive of­fi­cer of Out­look Asia Cap­i­tal, a Mum­bai-based mu­tual fund ad­vi­sory firm.

Sebi has asked funds to clas­sify schemes un­der 5 cat­e­gories to cut through clut­ter of sim­i­lar plans

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