Asset Management Companies See SEBI Move Spawning Fund Consolidation

The Securities and Exhange Board of India's decision to categorise the number of similar mutual fund schemes and also to cap ‘me-too' products will result in a reduction of the number of funds to 1,300 from around 2,000 products now.

Markets watchdog SEBI had on Friday asked mutual funds to categorise all their schemes within five baskets, in a bid to weed out multiple fund launches on similar themes.

SEBI's move is expected to make it easier for customers, who are now faced with plethora of choice of over 2,000 funds managed by 41 fund houses in the over Rs 20 lakh crore Mutual Fund industry, feel industry experts.

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The decision will also lead to consolidation in equity funds as most of the asset management companies (AMCs) hold more than one funds in the same sub-category now.

The over Rs 20 lakh crore AMC industry has 41 players.

But three AMCs handle only infrastructure debt funds, hence the total number of fund houses to be affected will be 38, as per the industry body Association of Mutual Funds of India or AMFI.

Under the SEBI classification, which broadly caps the fund categories to five, that are sub-divided into 36 categories, will see that total number of funds will come down 1,368 from over 2,000 now, Jeevan Kumar, head of investment advisory business at Geojit Financial Services, told PTI.

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This is in a situation where all 41 AMCs maintain one scheme each under 36 sub-categories as of the 41 fund houses only 38 have multiple funds. Three of them – IFCL AMC, IL&FS AMC and SREI Mutual Fund – have only infra debt funds, Kumar said.

The assets under management in equity mutual funds of individual investors – both retail and high net worth individuals – have grown by 48 percent in June on year-on- year basis while the folios have grown by 21 percent.

“The step is aimed at improving transparency and reducing the clutter for investors,” he said.

“I believe the number of products will come down to 1,200-1,300 from around 2,000 now over the next five months,” Kumar said.

“Mostly large fund houses with good number of similar funds under the same category are likely to be affected by the SEBI move,” he said.

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Kumar said for new investors entering the market, clarity on various products is more important to understand the asset allocation and chalk out their investment strategy.

Consolidation is expected more in equity funds as most AMCs hold more than one funds in the same sub category now.

Experts feel that the industry needs to offer fewer well defined choices rather than a plethora of clones.

“The regulatory direction is supportive of our belief that for investors to make optimal choices, we need to offer fewer, well defined choices rather than a plethora of clones,” Aashish Somaiyaa, the managing director and chief executive of Motilal Oswal AMC, said.

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Rajesh Patwardhan, chief marketing officer at LIC MF, said they have already merged two such funds in the equity mutual fund category and hence there is no scope for any further consolidation now.

Going forward, the fund schemes will be broadly classified into five groups - equity, debt, hybrid, solution-oriented and other schemes, a SEBI circular had said on Friday.

SEBI asked fund houses to ensure that schemes devised under the new norms should not result in duplication of other plans offered by them.

Going forward, the regulator would permit only one scheme per category except in the case of index funds, exchange traded funds tracking different indices; fund-of- funds having different underlying schemes; and sectoral or thematic funds investing in different themes.

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Fund houses will be required to analyse each of their schemes in the light of these categories and submit their proposals to SEBI after obtaining due approvals from their trustees as early as possible, but not later than two months.

Fund houses will also have to carry out the necessary changes in all respects within a maximum period three months.

The circular will apply to all existing open-ended schemes of all mutual funds.

To ensure uniformity in respect of the investment universe for equity schemes, SEBI has decided to define large cap, midcap and small caps.

Top 100 companies in terms of market capitalisation will come under the large cap segment, while companies that rank 101 to 250 will be midcaps.

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