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Six months after market regulator the Securities and Exchange Board of India (Sebi) issued guidelines for categorisation and rationalisation of mutual fund schemes, less than 2 per cent of them have undergone a merger.Between September and March this year, 15 schemes have been merged, the majority of which are debt schemes, data collated from Value Research shows. The fund count in the equity category has declined by six and that in the debt category has, in fact, gone up by 12. The total number of open-ended schemes today is higher than they were when Sebi issued its October circular. 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. "This effectively reduces the scope for large-scale consolidation," said Vidya Bala, head-mutual fund research, FundsIndia. 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 will have to either be wound up, merged or need to undergo a change in their fundamental attributes. Market watchers 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. The CEO of a large mutual fund house, on the other hand, insisted that his fund was taking the Sebi diktat seriously and had initiated the process of merging schemes. To be sure, it may still take another 2-3 months before the entire process of scheme categorisation is complete.
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.According to sources, the majority of the fund houses have got the final observation from Sebi regarding the changes in scheme attributes and/or mergers. “Fund houses have initiated the process of carrying out the necessary changes and giving the exit option to investors. Large fund houses, however, are lagging behind and may take another 2-3 months to complete the process,” said a senior official of a large fund house. Some fund houses are eschewing mergers and instead repositioning 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 the official quoted above. In the past six months, 94 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. Change in scheme names and/or fundamental attributes can 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," Bala said, adding 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.