Mutual funds keep fingers crossed on rules for merger of schemes

Sebi gave more than adequate time to industry to merge schemes; sector could not be up to the mark

The mutual fund industry is in a wait-and-watch mode over regulations regarding merger of schemes. 

The mutual fund advisory panel appointed by the Securities and Exchange Board of India (Sebi) is due to meet on Friday amid expectations that fund houses may not be allowed to continue with multiple schemes in the same category.

There are 2,041 schemes offered by 40 mutual funds, averaging 50 per fund house. Sebi feels these are too many for investors to understand, differentiate and choose from.

“Sebi has been suggesting this for years now, but the industry did not pay heed. Now we have to face the consequence,” said the chief executive officer (CEO) of a mutual fund house.

“Consolidation of schemes will be good for a few fund houses and bad for others,” said another CEO. Investors and distributors will beneficiaries, the former will have clarity on what schemes stand for and the latter will have fewer schemes to put forward.

“Consolidation of schemes will not affect marketing of mutual funds. Rather, it will intensify as the number of offerings declines. Fund management fees could change,” said the CEO of a mutual fund house.

Asked if this meant laying off fund managers, he said, “We need more fund managers and research members as the size of schemes increases and more investable instruments are brought into portfolios.”

Dhirendra Kumar, CEO of fund tracking firm Value Research, said, “Rules on mergers will not take away fund houses' freedom to come up with new schemes. There could be difficulties in merger of schemes. If a fund house has, say, four tax-saving schemes and wants to merge them, the tax department will object.” Several mutual fund houses have multiple schemes in the large cap, mid-cap and small cap categories.

On the cards

• The mutual fund advisory panel, appointed by the Sebi, is due to meet on Friday

• Many expect that fund houses may not be allowed to continue with multiple schemes in the same category

• There are 2,041 schemes offered by 40 mutual funds, averaging 50 per fund house

• Sebi feels these are too many for investors to understand, differentiate and choose from