Birla Sun Life MF faces Sebi flak for renaming schemes

The Securities and Exchange Board of India (Sebi) has taken Birla Sun Life Mutual Fund to task for changing the names of three of its debt schemes.

In May, the fund house had changed the names and structure of three of its monthly income plans (MIPs) — Birla Sun Life MIP (BMIP) to Birla Sun Life Long Term Accrual Fund (BLAF), Birla Sun Life MIP II - Savings 5 Plan (BMI5) to Birla Sun Life Credit Opportunities Fund (BCOF), and Birla Sun Life Monthly Income (BMI) to Birla Sun Life Low Duration Fund (BLDF).

MIPs are hybrid products that invest primarily in fixed income securities and typically take equity exposure of 10-30 per cent. Prior to the name changes in May, the portfolio structure of these schemes was tweaked to make them predominantly debt products, said sources.

The fund house was asked to revert to the original names of the schemes by the regulator a few weeks ago, said sources. While the fund house has switched back to the original names, their portfolio remains predominantly debt. “The rationale for what they did seems questionable. Did they make the changes to target a group of large investors and attract fresh inflows? And, is the move fair to existing and new investors?” said a person on condition of anonymity. An email sent to Birla Sun Life MF did not draw a response.

Birla Sun Life MIP has a debt allocation of 98.25 per cent and the rest is in cash and cash equivalents; Birla Sun Life MIP II - Savings 5 Plan has 96.77 per cent in debt, 1.22 per cent in cash and 2 per cent in equity; and Birla Sun Life Monthly Income has 96.87 per cent in debt, 2.08 per cent in cash and 1.05 per cent in equity, Value Research data show. As of December 2016, the three schemes had an equity allocation of between 9.5 per cent and 14.5 per cent, which was brought down to zero at the end of March 2017, the data show.

While there is no regulatory mandate to own a certain percentage of equity assets in MIP schemes, most MIP schemes currently have 15-25 per cent as their equity allocation.

According to experts, new investors entering the three schemes may believe that these are still MIP schemes even though the portfolio remains characteristically debt. “While the fund house may have provided an exit option to investors when the first name change was effected, it has not done the same when the names were reverted to the original,” said the person quoted above.

Regulatory norms mandate that any change in the fundamental attributes of a scheme or fees and expenses payable or any other change that modifies the scheme and affects the interest of unit-holders can be carried out only if a written communication about the proposed change is sent to each unit-holder and an advertisement is placed in one English daily newspaper having nationwide circulation. In addition, unit-holders have to be provided an option to exit at the prevailing net asset value, without any exit load.

“In reality, most investors ignore a communication from fund houses explaining the rationale for changes in scheme names or attributes or scheme mergers. This can adversely affect their portfolio,” added Suresh Sadagopan, a certified financial planner.

MIP schemes have seen a decline in their AUM over the past fewyears, chiefly due to changes in debt taxation