‘Sebi rationalisation to result in reduction of only 50 schemes’

Chennai: Markets regulator Sebi’s direction to mutual funds (MFs) to rationalise schemes would result in a reduction of only about 50 schemes out of the 850-odd schemes that are available for sale. “We find that only a few large AMCs (asset management companies) will be forced to reduce the number of schemes offered. The total reduction in schemes is no more than 7%-8% or up to 50 schemes,” said Kunal Bajaj, CEO & co-founder, Clearfunds, an online investment advisory firm.
“The other AMCs will still have to re-label and rationalise their offerings but it will not result in a decrease in number of schemes available,” he said.
Earlier this month, Sebi had asked fund houses to classify their schemes into clearly defined categories.
MFs launched multiple schemes under each category making scheme selection a confusing exercise for investors. In order to bring more clarity, Sebi asked fund houses to have just one scheme per category with an exception being given for index funds, fund of funds (FOFs) and sector or thematic schemes. MFs with multiple products will have to merge, wind up or change the fundamental attributes of their products.
There are only around 850 active open ended schemes available, much lower than the more than 3,000 schemes number that most advisors talk about, according to an analysis by Clearfunds.
Of these, 10% or 85 schemes are index funds, and another 89 schemes are sector funds, FOFs and commodity (Gold) funds and won’t be affected by the Sebi diktat.
AMCs however would see a sharp increase in MF offerings in categories where they do not have a competing scheme.
“Looking out a year or two ahead, there will be many more index fund and ETF (exchange traded funds) choices available to investors, as there are no regulatory limits imposed on the number that can be offered,” Bajaj said. For instance, there are only three ‘bond index ETFs’ currently available and 35 out of the 69 equity index & ETFs available track the Sensex or Nifty.
However, putting index funds and ETFs in the ‘others’ category may end up confusing the investor even more, he said.
An investor picking a large-cap scheme would be easily be able to evaluate between the best performing, most stable funds and those with the lowest expense ratio within the equity– large-cap category.
But when looking for a similar ‘Nifty-50 Index Fund’, the investor has to see the ‘Others-Index and ETFs’ category. “Putting index funds and ETFs in a separate category does not allow apples-to-apples comparison for the customer,” Bajaj stated. “Sebi should instead classify index funds and ETFs under the category of index they track — whether equity or debt,” he said.