SEBI move: MF industry could see consolidation

The mutual fund industry may soon see consolidation of its plethora of schemes as SEBI makes the process easy, said analysts.

The Securities and Exchange Board of India recently issued a circular mandating that the current scheme, resulting from a merger or consolidation of schemes, will not undergo any change in its fundamental attribute.

The large number of schemes in the industry may soon see a reduction in their numbers, if fund houses choose to take advantage of the SEBI circular, say analysts.

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“Product rationalisation is important for a growing industry and leads to improved efficiencies. The change in regulations should help in reducing operational complexity for this process, without diluting investor interests,' said Mr Jaya Prakash K, Head-Products, Franklin Templeton Investments.

This circular is investor-friendly and has been modified to suit investor needs, believe analysts. “This circular is very beneficial for the investor as it gives them the choice to exit or continue with the scheme, depending on the surviving scheme and its attributes. From an investor's point of view, this gives a clearer view of the funds involved,” said Mr Raju Singh, mutual fund analyst at SBI Cap Securities.

This circular is in direct contradiction to an earlier circular from SEBI in June 2003.

Then, the regulator had mandated that the surviving scheme would undergo a change in its fundamental attributes. This confused the investor, said analysts.

“The earlier circular was lenient, while this is a little bit more stringent. This circular gives a clearer rationale for the surviving scheme. Fund houses will now have to launch their schemes carefully as they will be very wary of SEBI's action,” said Mr Dhirendra Kumar, CEO, Value Research.

“This is a trivial matter and will not make too much of a difference to the industry,” he added.

Analysts believe that there are way too many products in the industry and merger of some of the schemes will reduce confusion and boost investor confidence.

“There are several schemes in the industry today which have an AUM of just about Rs 10 crore, some of even Rs 1 crore. So, why not merge these small schemes into one big scheme?” asks a mutual fund analyst who did not wish to be named.

However, there are certain limitations with respect to mergers of these schemes, as the investment mandate for each fund is different.

Source: http://www.thehindubusinessline.com/2010/10/28/stories/2010102852871300.htm