Sebi issues more disclosure norms for merged mutual fund schemes

The Securities and Exchange Board of India (Sebi) has tightened norms pertaining to disclosure of performance track record of merged mutual fund (MF) schemes.

The market regulator on Thursday issued a circular for standardising performance disclosures following a merger of schemes.

Currently, due to lack of formal guidelines some fund houses use a weighted average of the performance of the schemes involved, while others only show the performance of the surviving schemes, the regulator said.

A weighted average of the two schemes is to be used only if they have similar features. The track record of a scheme, whose features are retained in the surviving scheme, is to be disclosed if merged schemes are different, according to the circular, effective May 1, 2018.

Further, no track record needs to be provided if neither schemes’ features are retained in the new scheme. This would also apply to mergers where the surviving schemes’ features are fundamentally different from both parent schemes.

“In addition to disclosing the performance of the scheme as mentioned… past performance of such scheme(s) whose features are not retained post-merger may also be made available on request with adequate disclaimer,” the circular said.

The move gains significance in the light of an October 2017 circular for rationalising schemes. The regulator had said all schemes must fit in standardised categories, leading to expectations of mergers since there could be only one scheme per category.

However, a Business Standard analysis of Value Research data had earlier shown mergers to be few and far between. Experts had said many fund houses had merely changed their category, instead of pruning the number of schemes that they already had.

The analysis had shown that the number of equity schemes in the industry had only gone down by half a dozen in the six months between September 2017 and March 2018. The number of debt schemes has increased by 12 in the same period.

The current move may still leave a blind spot for investors. Kaustubh Belapurkar, director (fund research), Morningstar Investment Adviser India, said the confusion over track record could also apply to changes in mandate without a merger.

“Even if an existing scheme undergoes a change in mandate, there could be confusion over track record if the features are significantly different,” he said.

Vidya Bala, head (mutual fund research), FundsIndia, also agreed that this would not solve the problem if a scheme has changed its mandate without a merger having taken place. “The investor will have to be careful when investing in funds which have changed their strategy without undergoing a merger or consolidation, as the past track record would not be an accurate measure of performance,” she said.