Wednesday, March 07, 2018


by number of Schemes ( 11,856 as per last updated count) and 43 Mutual Fund Hoses ( as per last count ) on how to pick Fund, Schemes and how to choose funds easier to invest ? ( For more Mutual Funds in India Data Details Click on Link 2 available at the end of this Article)

Well, SEBI with an intent to make it Simple, Standard and Transparent for a retail Investor, had come out with a paper for Mutual Fund Houses to Consolidate and Simplify the Schemes by 31st MARCH,2018. ( For more Click on LINK 1 available at the end of this Article)


SEBI has directed Mutual Fund Houses to Define their  Schemes under BROAD 5 Categories as under-

 and the sub Categories for example-

                      Large and MidCAP
                      Dividend Yield
                      Value OR Contra ( Not both either of one)
                      ELSS ( Equity Linked Savings Scheme)-( Tax Saving Equity Mutual Fund)
                      Focused Fund
                      Equity Savings

B- DEBT_ ( More or Less same, only one new category added, Ultra Liquid( Name could differ), but here less than 15 days to over night papers investment is the category.

C- HYBRID_ ( Only One of them not both in a Fund House)
                    Balanced Hybrid
                    Aggressive Hybrid

D- SOLUTION BASED FUNDS ( Goals based like Children's Education Plan, Retirement plan , Cancer Plan etc)

                     Sectoral / Thematic
                     Index Fund
                     FoF i.e. Fund of Fund ( Overseas or Domestic)

Well Choose your door Well before knocking one, is what SEBI ( Securities and Exchange Board of India) is trying to guide the Investor with, and in those lines they are regulating Fund Houses to Simplify the Schemes and its Classification with Risk and Objectives Clarity and transparency.


While SEBIs defining is done with good intent of Simplification and transparency,it has got some NEGATIVE SIDE IMPACT, atleast for short term)

As the Mutual Fund Houses Consolidate their schemes, there are / would be some Large Actions Happening -

A- Selling of Portfolio to Adjust to the definetion head
B- Buying of Few Shares to adjust to the defined scheme
C- Transfer of shares within Fund House Schemes

For example-

HDFC Mutual Fund has 2 Flagship Balanced / Hybrid Funds

HDFC Balanced and HDFC Prudence....... both are different kind of schemes and as per SEBIs recent guidelines and definetion they can continue with only one. ONE of the Largest Fund Houses, TWO of the Largest Balanced Funds and now only one has to exist. Roughly 20 thousand crores Plus ( 20,000 Crs PLUS ) of Asset Under Management in each of those schemes and only one of them has to exist, means either of the above stated three Actions has to happen before 31st March and by March 15 every Fund House has to submitt their Schemes list as regulated and defined , to SEBI for Approval.

HDFC Balance- 200.8 Billion Rupees AUM

HDFC Prudence -394.3 Billion Rupees AUM

( 1 Billion = 100 Crores)

This instigates all Mutual Fund Houses to Realign and act which could mean HIGH TURNOVER, LARGER then regular EXPENSE RATIO, Super Churning of Portfolios and resulting probably also shorter term Negative returns.

Previously SEBI Came out with Risk Understanding for Retail Investor Simplification mechanism.( For more CLICK on LINK 3 Below) and now Simplification of Schemes to Classify and Understand for retail Investor.

Now lets List some Positives out of these regulations, broadly-

A- Simplification
B- Transparent
C- Classification
D- Probably right number of funds to choose from ( Number of schemes expected to nearly to halve)
E- New Indexes- ( Very Good )
F- New and standard Benchmarks 
( Untill now, any fund, any fund house could choose any benchmark to compare with their fund.Now all Categories will have standard Benchmarks to compare with. For Example- New Index would be NIFTY 100 , so all Large Cap Funds of all Fund Houses across all Funds, will be Compared with same Benchmark i.e. in this case Nifty 100.It is something like, Comparing iPhone 10 ( as benchmark) to Samsung 8 and deciding on buying or not).This will bring different level of transparency and decision making should be much simpler, if it goes as understood from the regulations.

Every Coin has TWO Sides.

Now lets List some Negatives out of these regulations, broadly-

A- Shorter term high Volatility in NAVs ( Net Asset Value - per unit) and Markets
B- Probably Higher Expense ratio,then normal
C- Current Schemes Objectives and Longer term Views on Individual Scripts will have no meaning
D- This can be a reason for shorter term negative returns
E- This may result in - Consolidation of schemes, closing of schemes, re-naming of schemes- either of three ( Very few will remain as it is, and none will remain without any impact)
F- Change in Fund Managers
G- Longerterm Mergers and consolidations of Mutual Fund Houses
H- Very Large AUM handling is a very big issue and brings very big Impact in Market as well as Schemes NAV. For example- Same above case of HDFC Hybrid 2 schemes- If 1% of holding of 395 Billion Rupees is to be sold from HDFC Prudence ( Just for the sake of understanding), it would mean a disturbed market and disturbed NAV.
I- All the Past Benchmarks will have no meaning, so once launched, on 1st April,2018, all new schemes will have records and benchmarks by itself only after certain period.Like for Example, HDFC or Reliance certain schemes has a history to compare performance since 1983, but now since the Classification and Composition changes, those Performance benchmarks and history will not have any relevance, unless the scheme continues as it is, which only few schemes will be like that.

    Following change is GOOD or BAD - POSITIVE or NEGATIVE- only time will tell

 While their are well-defined changes on Market Cap and Accordingly a Index is Defined, the snake could be, every 6 months a list of Market Capitalisation of Shares will be Declared and Accordingly, ALL Mutual Funds will have to effect their changes in the scheme, as per defined criteria's. THIS WILL Bring huge volatility in short term, every now and then. ( Not sure how this will be carried ahead to avoid this threat).

So SEBI is working with right intent to make Retail Investors Life easier and grow the Investor Base and Market Size.How much right direction, how simple, how transparent? ONLY TIME WILL TELL and Probably Change will be the only Constant for next few years atleast, unless the Life is Easier for a common Investor.( AND I WILL BE THE HAPPIEST PERSON THAT DAY).

                           Conclusion for Retail Investor-_______________

A_ Stick to your reason of investing and live with volatility and shorter term negative returns
B_ Some funds have kept Until March,15 EXIT LOAD Free Redemption period, if at all need be, take advantage of the same ( DISCLAIMER:  Exit load,should not be the reason to sell, the reason should be point A at the centre)
C_ SEBI is clear with the intent to increase Market Size for Equity Markets and Mutual Funds through Facilitating ease by ensuring to increase number of Investors.and so SEBI will keep on introducing newer aspects.
D_ Simplicity, Transparency and Classification should make life easier
E_ Live with Changes and move over the changes- it may happen frequently ,especially in next 18 months to 3 years.( Changes as required in the industry by SEBI, will need lot of active and alert actions and regulations from them, which will have changes very often)
F_ Gone are the days to Invest , Start SIP and just letting it go as it is, a Continous monitoring, reporting and re-balancing and changing the portfolio according to need, life-cycle, risk and market scenarios with change in regulations, would be required more and more, which requires more professional guidance and handholding.

                                                       HAPPY INVESTING


LINK 2 - MutualFundsDatainINDIA

LINK 3- SEBIsColourCodeRISKassessment


Changes in Scheme as Declared and Published as on 27-03-18

1 comment:

ams said...

Very Informative. Thanks