SEBI To Reduce Mutual Fund Schemes By Half

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Picking a Mutual Fund investment plan these days is like being in a quandary and choosing the line of least confusion. The change in India's investment customs has made investing in mutual funds a no-brainer. And, in the past years, the rise in capital investments linked to the mutual funds has increased considerably, making it the most preferred choice among the investors.

With a total of around 2000 mutual fund schemes to choose from - it turns out to be one of the most painstaking tasks for an investor to choose. The hundreds of plans in the same category make it really hard to choose from, hosting many similar plans with various tags. In most of these cases, several schemes are found out to be identical in their investment plans and the only difference turns out to be their names. Because of this, many people stay confused and end up selecting wrong schemes. Thus, they’re left with no choice, but to keep on wasting their money on the schemes that do not fulfil their requirements.

It seems that the emerging thematic sales and capital management businesses attract mutual funds as it leads to Assets under Management (AUM) of the Mutual Fund industry crossing Rs.20 lakhs crores in August, 2017. Ranging from the household investors and retail, to the capital investors - all seem to be enticed by the mutual fund industry.

To avoid further dilemma in the case of mutual funds, the Securities and Exchange Board of India (SEBI) has initiated a regulatory notice proclaiming the terms of categorization of mutual funds. And, have stated that no enlisted category is liable to contain more than one similar scheme. This resolution is being proposed to reduce the number of mutual fund schemes by half, offering investors a clearer choice.

All the Asset Management companies have been apprised of this notice. The mutual fund schemes are supposed to be graded into equity, balanced, debt and thematic - with further sub divisions such as large and small cap. This will make the investor's choice clear.

SEBI officials announced that the name of a Mutual Fund investment scheme should clearly portray its genre and the majority of its terms should comply with it. It should be done in such a way that the investors don't choose the luck of a draw.  No violation of the categories would be tolerated and schemes are liable to be shut if such cases happen.

Why SEBI Initiated Such a Notice?

The sole aim of such a resolution is to merge all the similar schemes into one bigger scheme. SEBI has proposed that such a change should not be of any concern to the risks/time management related to the investors, as the uniformity and consistency of the schemes would help them initiate their funding.

The existing customers who already have invested in such mutual funds where they feel that the particular scheme is not suiting their purpose of investment, timeframe and risk levels - they can opt out of the scheme and can invest in other funds that fit their set of requirements. Taxes may be levied depending on the amount and holding period.

In case, the existing mutual fund scheme is in sync with their investment purpose, they can continue with the same fund and wouldn’t have to go through any added taxes. Fund managers believe that the move would help spot and expose quality funds, which will eventually result in helping the investors invest their money in the right fund scheme.

SEBI has announced to introduce the conditions for these mergers very soon. However, the AMCs are currently addressed to assign the categories to all of their pre-existent schemes.

All the major AMCs have commenced their merging campaigns (with an objective to accomplish each & every such merge) before SEBI's notification comes into charge. As denoted by the Finance Budget 2017, the merger schemes are to remain absolved from Capital Gains Tax.

It tends to be an equally laborious task for all the AMCs to reassess their set of mutual fund schemes, in order to come up with the most optimum scheme; whereas, remaining funds will be confined to their predefined brackets. In order to reduce the number of funds, most of the AMCs are likely to strategize a bigger scheme.

What Results Could Such a Resolution Deliver?

The individuals share in the Asset under Management of the Mutual Funds Industry has increased from 45 to 48% in the past year. Till September’ 2017, the AMCs managed to hold Rs. 20.6 trillion. Although much debate goes on with this matter, SEBI is sure to have helped the investors in the long run.