Mutual Funds advisory panel likely to suggest merger of schemes

The Advisory Committee on Mutual Funds appointed by the Securities and Exchange Board of India (Sebi), which is scheduled to meet on Friday, is planning to list a slew of recommendations before the regulator. Senior officials in the mutual fund industry say that the committee might recommend measures such as the merger of schemes, adoption of total return index (TRI) and an increasing amount of investor awareness campaign for Association of Mutual Funds in India (Amfi).

In the past also, the markets regulator had asked fund houses to merge similar schemes so that it was easy for investors to understand and invest in mutual funds. Currently, there are over 2,000 schemes in the domestic mutual fund industry. “We have to wait and see how Sebi brings in regulations regarding the merger of schemes, as this exercise will be challenging for big fund houses. For example, if one scheme having a corpus of `500 crore merges with another with the same amount of corpus, then a graded expense ratio calculation sets in, which will impact the income of such fund houses,” said a CEO of a leading fund house.

According to the regulations, higher the corpus lesser the expense ratio of the scheme. Many participants also believe that it will be even difficult for fund managers to manage such large corpus. Industry players also said that the panel might also recommend adoption of total returns index as the benchmark to give a better picture. Recently, DSP BlackRock Investment Managers decided to disclose the performance of its active equity funds with TRI as a benchmark. Total return, when measuring performance, reflects the actual rate of return of an investment or a pool of investments over a given evaluation period.

Securities and Exchange Board of India ( SEBI )