The SEBI Bhavan, Head Office of Securities and Exchange Board of India in Mumbai (Photographer: Jimmy Vikas)

SEBI’s Move To Simplify Choice For Mutual Fund Investors Hasn’t Worked

India’s stock market regulator’s aim to standardise mutual fund schemes in the country to avoid confusion and simplify choice for investors hasn’t had much success as the number of total plans has actually gone up.

There were 579 open-ended equity and debt schemes as of March compared with 571 in September, data provided by the Association of Mutual Funds of India showed.

The Securities and Exchange Board of India had on Oct. 6 asked all mutual fund companies to re-categorise either by merging or altering features of existing schemes to avoid duplication. It defined 10 categories for equity funds, 16 for debt funds and six for hybrid funds, allowing one scheme each. The regulator gave fund houses the liberty to decide.

An analysis of the top 10 funds that manage around 80 percent of the industry’s assets revealed that only seven merged some of their existing schemes. Consolidation reduced the total under new categories by 6 percent to 397 schemes as of April for them. About half of the funds still have more than 35 schemes each.

SEBI’s Move To Simplify Choice For Mutual Fund Investors Hasn’t Worked

“In some cases, the schemes have been merged and in others if a category was available, the attributes have been changed and the scheme has been moved to that bucket,” Dhirendra Kumar, chief executive officer of investment research company ValueResearch, told BloombergQuint. SEBI has only managed to standardise the definition of funds, but the move doesn’t simplify investors’ choice because there are still too many categories, he said. “Most investors’ needs could be fulfilled by much lesser number of schemes.”

SBI Mutual Fund, DSP BlackRock Mutual Fund and Axis Mutual Fund didn’t require a merger of schemes as their existing policies didn’t have any duplication, according to their spokespersons.

“Ideally, SEBI should have ordered to merge schemes with similar mandates rather than allowing changes in their fundamental attributes,” according to Manoj Nagpal, chief executive officer at investment advisory firm Outlook Asia Capital.

Also read: #BQMutualFundShow: How SEBI’s Mutual Fund Classification Can Impact Your Portfolio

Gajendra Kothari, managing director and chief executive officer of Ética Wealth Management, agreed. “Most fund houses conveniently changed the investment objectives of a few schemes to comply with the new fund categories defined by SEBI,” he said. “Hence, the number of existing schemes still remain very much the same.”

Apart from 32 categories for equity, debt and hybrid schemes, SEBI also defined two categories for solutions-based funds—one each for retirement planning and children’s future—and one category each for index funds/exchange-traded funds and fund of funds. The number of schemes under these categories could be more than one.

“The purpose of the new SEBI rules was to merge duplicate schemes as this was creating confusion among advisors and investors,” said Kothari. There was no real benefit as the directive ended up creating a vast number of categories in each of these asset classes.”

The top 10 fund houses earlier had 42-43 schemes each as they have a presence in all SEBI-defined buckets, A Balasubramanian, chairman of AMFI, told BloombergQuint in an interview. “Each fund house will roughly have anywhere between 25 and 35 schemes from now on”. The entire process will be complete by June 30, he said.

Bigger fund houses are present in all these categories and will now have to consolidate, but it’s an opportunity for smaller fund houses which can raise money by launching new schemes under various categories, he said. “With [SEBI’s circular], they will have clarity on what they can and cannot do.”