Securities and Exchange Board of India (Sebi) has ‘restarted’ its push for consolidation of mutual fund schemes. Instead of coming out with detailed regulations, Sebi is trying to achieve this objective indirectly by putting pressure on asset management companies (AMCs).
For example, the regulator is pressurising AMCs to consolidate existing schemes before applying for New Fund Offers (NFOs). Similarly, Sebi is also clearing new mergers and acquisition (M&A) activities among mutual funds only after the merger of similar schemes.
We agree that Indian mutual funds now offer too many schemes and this is creating confusion among investors. The problem becomes acute when AMCs have several schemes within same category. This has to stop and AMCs should ensure that they have only one scheme per category.
Though this ‘one scheme per category’ sounds ideal, problem comes when one get into details and starts defining a ‘category’.
For example, AMCs that already have mid cap and small cap equity funds may want to come out with ‘mid and small cap fund’, claiming that ‘it is another category’.
Currently, rating agencies classify schemes into categories and they do it mostly based on the historical investment pattern of the schemes. The problem in this structure is that several thematic equity schemes such as dividend yield funds and international funds get clubbed as large cap or mid cap or flexi cap funds.
