Push by Sebi gets MF scheme mergers rolling

The Securities and Exchange Board of India ( Sebi)’ s insistence that mutual funds cut down on the number of schemes they manage is beginning to yield results, but the scope for merging plans still remains large.

In the first five months of this calendar year, more than 30 schemes have been merged, compared with almost half that number in the whole of 2015, according to Value Research. From 2010 till now, roughly 150 schemes have been merged. At present, the mutual fund industry has roughly 350 equity schemes and 1,500 debt schemes.

“There is a scope for more mergers across all categories, whether debt or equity,” said Manoj Nagpal, chief executive officer, Outlook Asia Capital.

“Several fund houses have paid a price for acquiring schemes from other fund houses during mergers, with a view to boost assets and valuations.

That is the main reason why they are reluctant to cut down on schemes,” added asenior fund manager on condition of anonymity.

Experts said the older and larger fund houses mostly had multiple debt schemes with the same characteristics. However, these schemes are positioned differently to cater to the needs of different institutional investors.

For example, there could be with a low expense ratio.

Also, the schemes could differ in terms of their maturity profiles.

The regulator has been tightening the screws on scheme mergers for some time. Last year, Sebi made it clear it would not approve new schemes until fund houses merged similar ones. Experts said the regulator was insisting on scheme mergers prior to “The focus should be on merging small schemes as these typically have a high cost structure,” said Nagpal.

This year’s budget extended the capital gains tax exemption to the merger of plans — dividend, growth, and bonus —within a scheme. Last years budget had done away with the capital gains tax for scheme mergers.

"The tax impact was the of schemes. Now the officer of Peerless Sebis ban on entry loads in August 2009 had significantly affected the number of new equity fund launches. In 2010, the regulator had asked fund houses to merge similar schemes, saying too many schemes could confuse investors. Fund houses had introduced several similar schemes when the markets were on a roll during 2006 and 2007.

Business Standard New Delhi, 03 June 2016