Skip to main content

Sebi May Bring Rules for Merger of MF Schemes

Sebi May Bring Rules for Merger of MF Schemes
Move expected to improve transparency and reduce confusion for MF investors
India's capital markets regulator intends to introduce rules that will force mutual funds to merge schemes in the same investment categories, driving long-pending consolidation in an industry that has hitherto ignored informal requests for ending the surfeit of plans.
Broadly put, if a mutual fund has two equity schemes with mandates to invest in large-cap stocks, the asset manager will have to merge the investment products once the new rules proposed by the Securities and Exchange Board of India (Sebi) kick in. The step is aimed at improving transparency and reducing the clutter for investors.
The Sebi-appointed mutual fund advisory panel, scheduled to meet September 1, will discuss the matter, said three people familiar with the development. Exact details of the proposed rules could not be ascertained, but one official said the norms will require clear categorisation of mutual fund schemes, and aim to eliminate product ambiguities.
For about a decade, the regulator has been informally nudging mutual-fund houses to merge schemes with similar attributes. But with the industry resisting such moves, Sebi has been forced to come out with the proposed set of rules.
“Mutual funds have not responded to Sebi's persuasion for years. So, now it has decided to come out with the rules,“ said a senior mutual fund industry official privy to the matter.
In June, Sebi chairman Ajay Tyagi stressed the need for consolidation of schemes.
In India, 42 asset managers handle more than Rs.19.5 lakh crore across 2,000 MF schemes.Sebi has maintained that the number is high, and is causing confusion among investors who have to choose from an abundance of similar products. In an attempt to push the merger, the regulator had stopped giving several mutual funds the for floating new schemes. Most funds withstood the regulatory pressure as a wider product basket has helped them gather more assets, boosting profitability.
“Mutual funds do not really benefit from consolidation,“ said Manoj Nagpal, chief executive, Outlook Asia Capital, an investment advisor. “The probability of one scheme doing better than a similar one at any point always works for the mutual fund.“
Nagpal said the industry could also be worried that consolidation of schemes could impact the total expense ratio--the fee that funds charge investors every year for managing their money .“At some stage, bigger schemes will have to bring down their expense ratio. This will impact their profitability,“ he said.
The government, in the previous two annual Budget announcements, had paved the way for mutual-fund scheme mergers by removing tax anomalies.Earlier, mutual fund investors were deemed new subscribers for taxation purposes if a scheme merged with another. This meant investors had to pay short-term capital gains tax of 15% for an equity scheme if they exited it within a year. The Budget this year clarified that such a merger would be considered as a continued investment, which means there would be no taxes if an investor exits within a year of the merger.
A top mutual fund official said consolidation of schemes will bring a `level-playing field' in the industry.
“Hopefully, now Sebi will give permission to mutual funds to launch schemes that they do not have,“ the chief executive of a mutual fund said, requesting anonymity.
The Economic Times, New Delhi, 28th August 2017


Popular posts from this blog

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…