AMFI is likely to approach SEBI requesting modification of certain regulations of the scheme consolidation guidelines, said two people familiar with the development.
Among other things, AMFI wants the market regulator to modify norms related to market capitalization, Macaulay duration and inclusion of gold as an asset class in the multi asset funds.
Last month, SEBI had come out with uniform definitions for fund categories to reduce confusion among investors and expedite scheme consolidation.
SEBI had defined large cap stocks as the 1st to 100th companies in terms of full market capitalization. While mid cap stocks, comprise 101st to 250th companies, small cap stocks consist of beyond 250th companies in terms of full market capitalization.
A CEO of an emerging fund house told Cafemutual that SEBI norms say that the mid cap fund will have to invest at least 65% in mid cap stocks. However, it will be difficult for fund manages to choose among a basket of just 150 companies i.e. 101st to 250th companies. Eventually, it will hamper the performance of fund, he added.
On debt funds, AMFI will request the market regulator to consider modified duration instead of Macaulay duration. “Duration signifies risk. Longer the duration higher the risk. Since modified duration measure the price sensitivity of a bond due to change in the yield to maturity, it is a better measurement of interest rate risks. On the other hand, Macaulay duration calculates weighted average of maturity before the cash flows on bond starts and hence it may understate such risks,” says a senior official requesting anonymity.
Currently, most fund houses consider modified duration to measure interest rate risks.
Another key aspect of the circular is inclusion of gold in multi asset funds. SEBI has asked fund houses to have exposure to at least three asset classes in multi asset allocation funds. “Apart from equity and debt, there are commodities like gold where a fund manager can invest in. Since, our fund managers do not have conviction on the performance of gold, they are not willing to take exposure to such an asset class,” says a CEO of the private fund house.
