Sebi's 50% overlap rule to trigger churn in 51 thematic funds: Elara

However, the overlap is not high for the majority of the schemes. Only 13 of these schemes (excluding those with assets worth less than Rs 1,000 crore) have an overlap of over 52%, the report showed

The Securities and Exchange Board of India’s (Sebi’s) move to tighten norms for thematic and sectoral funds is set to impact dozens of schemes in the category. An analysis by Elara Securities shows that 51 sectoral and thematic schemes currently breach the 50 per cent portfolio-overlap threshold with at least one other scheme within the same fund house.

 

However, the overlap is not high for the majority of the schemes. Only 13 of these schemes (excluding those with assets worth less than Rs 1,000 crore) have an overlap of over 52 per cent, the report showed.

 

These schemes will have to reshuffle their portfolios over the next three years to meet the regulatory requirement. The report estimates that these schemes will have to reallocate Rs 76,000 crore to reduce the overlap to 50 per cent. Considering the three-year glide path, “the aggregate impact does not appear materially disruptive”, Elara Securities noted in the report.

 

“Importantly, the highest overlapping allocations are largely concentrated in highly liquid, large-cap names, where absorption capacity is significantly stronger,” it added.

 

Schemes with the highest overlap include Quant Momentum Fund (78 per cent overlap with Quant Quantamental Fund), Motilal Oswal Business Cycle Fund (75 per cent overlap with Motilal Oswal Multi Cap Fund) and Aditya Birla Sun Life Business Cycle Fund (63 per cent overlap with Aditya Birla Sun Life Flexicap Fund).

 

Fund houses are likely to correct the overlap by reallocating the portfolio of the smaller of the two schemes. Given practical portfolio management considerations, any realignment is more likely to occur in the smaller scheme, as the execution impact would be relatively lower compared to adjusting the larger scheme, the report said.