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Sebi's new rules on categorisation: 20% MF scheme names to be changed

Chandan Kishore Kant / Mumbai 14 Feb 18 | 05:48 AM

Photo: Reuters

The names of nearly 300 to 400 mutual fund (MF) schemes will change over the next few weeks in order to comply with the Securities and Exchange Board of India's (Sebi's) new rules on 'categorisation and rationalisation'. One in five schemes needs a change of name to meet Sebi's one-scheme-per-category rule, according to industry players.

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The process is under way, with DSP BlackRock MF, Motilal Oswal Asset Management Company and HSBC MF announcing changed names for nearly half-a-dozen schemes. Sources said many fund houses were waiting for regulatory approvals and might make similar announcements in the coming weeks.

The capital market regulator had last October released a circular for categorisation and merger of schemes. Sebi provided for key categories under the three board segments, equity, debt, and hybrid, and directed MFs will have only one scheme in each category. It further asked asset management companies  that had more than one scheme in a category to either wind up, merge or change the fundamental attributes of the scheme, after obtaining permission.

Changing the attributes of schemes includes changing its name. There are 1,910 mutual fund schemes across categories - income, equity, equity-linked saving schemes (ELSS), balanced, money market and exchange traded funds (ETFs), among others. Head of asset management companies say merger of schemes may shrink the count by more than a fifth.

Industry players fear the move may lead to confusion among investors.

"The name-change proposition can create confusion among investors. There are several schemes that have become brands, people associate with them. It is going to be tricky for investors. At first, they will try to find what scheme's previous name was," said Kaustubh Belapurkar, director, fund research at Morningstar India.

"This is nothing but micro-management. Sebi has approved the schemes' names and now it has problems with names that have been around for decades. We have no option but to do what we are directed, but it is not fair. The branding of schemes is at stake," said the chief executive officer (CEO) of a large fund house. 

Industry sources said the regulator had raised objections to words like 'advantage', 'credit', 'plus', 'opportunities', 'prudence', and 'focused' used in scheme names.

Sebi did not want these adjectives which, 'mislead investors', said the CEO.

Industry executives said Sebi may not have realised that the categorisation exercise would turn out to be a herculean task for industry players and the regulator as well.

According to them, the process may bet extended till June, given the high work load.

Not just investors, but distributors and advisors, too, could face problems in adjusting to the new regime, said the industry players.

"Investors have a quick connect with popular schemes like HDFC Equity, Reliance Growth, Reliance Equity Opportunities, ICICI Prudential Value Discovery Fund, Birla Sun Life Frontline Equity, HDFC Prudence, ICICI Prudential Focused Bluechip, Franklin Templeton Prima Plus and ICICI Prudential. These are not just schemes but brands in themselves," said a distributor. 

Sebi's objective behind the move to categorise and merge schemes was to avoid mis-selling and end the practice of launching many similar schemes just for asset mobilisation by fund houses.


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