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No major change in number of MF schemes post Sebi rationalisation

Ashley Coutinho / Mumbai 28 May 18 | 11:02 PM

The Securities and Exchange Board of India's (Sebi's) move to categorise and rationalise mutual fund schemes has resulted in a reduction of less than three per cent in the number of schemes in the MF universe.

Between September 2017 and May this year, 38 schemes have been merged, the majority of which are in the debt domain, data collated from Value Research shows. The fund count in the equity category has declined by one and that in the debt category has reduced by 26. Open-ended schemes today number 977, about three per cent lower than the figure before Sebi issued its October circular.

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Experts believe the number of categories under the new directive provides enough options for fund houses to continue with existing schemes under a different category, which effectively reduces the scope for large-scale consolidation.

Sebi has broadly classified all schemes under 10 categories of equity funds, 16 categories of debt funds, and six categories of hybrid funds. According to the new guidelines, there can be only one scheme per category. Excess schemes have been either wound up, merged or have undergone a change in their fundamental attributes.

Some fund houses eschewed mergers and instead repositioned their funds, said experts.

"If a fund house has three multi-cap funds, it can easily convert two of them into sectoral or thematic funds. This way they won't lose out on the assets unless the investors choose to exit the schemes," said a fund official.

In the past eight months, 315 schemes have changed their names, data from Value Research shows. Sebi's one-scheme-per-category is not applicable to sectoral/thematic funds, index funds, exchange-traded funds as well as fund of funds.

Market watchers also believe that some fund houses, especially the newer ones, may have had a gap in their portfolio and may be looking to fill it through new scheme launches. A case in point being BNP Paribas MF. "We didn't have as many funds to begin with, and the new categorisation norms, in fact, will give us the opportunity to launch four-five new funds," said Anand Shah, deputy chief executive officer (CEO), BNP Paribas MF.

In October, fund houses were asked to submit their proposals for categorisation within two months to Sebi. After the submissions, Sebi would issue its observations to the proposals. Once these are issued, fund houses would get three months to carry out the changes.

The majority of the fund houses have got the final observation from Sebi regarding the changes in scheme attributes and/or mergers and have given the exit option to investors.

Change in scheme names and/or fundamental attributes may confuse investors. "A mid-cap scheme that changes into a large- and mid-cap fund will now sport a different risk and return profile. Its past return will be of little relevance, as its risk profile will be different," said Vidya Bala, head-mutual fund research, FundsIndia. She added that new investors buying a scheme based on past returns may not know its history and form return expectations not in tune with the fund's present attributes.

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