The move is likely to benefit fund houses managing PMS or advisory funds.
Market regulator SEBI has relaxed the portfolio replication from 100% to 70% in PMS or advisory funds for domestic fund managers. The move spells good news for AMCs managing offshore funds or PMS in India. However, a few industry officials feel the replication percentage should be brought down further.
SEBI has stated that a minimum of 70% of portfolio value shall be adequate, provided that AMC has in place a written policy for trade allocation and it ensures that the fund manager doesn’t take directionally opposite positions in the schemes managed by him.
“Instead of 100% portfolio similarity SEBI has brought it down to 70% now. Instead of two fund managers managing offshore funds, AMCs can have one fund manager running the show. Earlier AMCs were required to have different processes, systems and fund managers for managing offshore funds,” says Jimmy Patel, CEO, Quantum Mutual Fund.
AMCs had told SEBI that perfect replication of portfolio between the mutual fund scheme and schemes/products under other permissible activities of AMC may not be achieved at all times.
“It is better for AMCs because if there are any offshore mandates which are similar to existing domestically managed funds then they can have a common fund manager,” said a CIO of a foreign fund house.
In order to address conflict of interest pertaining to a common fund manager managing multiple schemes, SEBI has directed MFs to disclose the returns of that particular fund manager for all schemes managed by that fund manager on their websites on a monthly basis. AMCs will also have to display this performance in advertisements.
It has said that if the difference between the annual returns provided by the schemes managed by the same fund manager is more than 10% then the same shall be reported to the trustee and explanation for the same shall be disclosed on the website of the AMC.
Fund houses run separate teams for mutual fund and PMS/advisory funds under PMS. “I don’t see the point in AMCs having multiple teams to manage funds. If an AMC manages offshore funds why shouldn’t the same team manage domestic mutual funds?” said a fund manager, requesting anonymity.