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Friday, Feb 13, 2004

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SEBI rejecting MF schemes with `misleading' names

Nilanjan Dey

Kolkata , Feb. 12

THE Securities and Exchange Board of India is turning extra cautious while clearing offer documents of mutual funds bearing tags that could confuse investors. A few cases of tentative names being turned down have come to light in recent times.

The regulator's stand is based on its opinion that names of schemes should not mislead the market or encourage it to believe that fund managers will deliver guaranteed performance. The idea is to encourage asset management companies to name their products in a manner that does not leave room for doubt.

Mutual fund circles confirm that SEBI has been saying `No' to certain draft offer documents placed before it for clearance. These include offer documents for monthly income plans, sent to the regulator in recent months by fund houses that did not wish to label their products in traditional MIP fashion.

The name of a fund often conveys a certain message, one that investors immediately relate to, said Mr A.P. Kurian, Chairman, Association of Mutual Funds in India. Such a name should not compel them to think that promises are being made, he added. SEBI, which vets draft proposals, can reject those that do not meet this requirement.

MF sources also maintain that SEBI has been refusing permission to some names that describe a fund's style of investing. For instance, it did not permit one of the medium-sized players - its identity is being kept under wraps - to add the term `momentum' to an offer; it was later launched successfully as a plain MIP.

It may be mentioned here that the MF industry's penchant for monthly income products has lately turned a few players towards smarter names. DSP Merrill Lynch for one has its Savings Plus Fund; this is positioned like an MIP but like its peers does not assure any monthly payout. Prudential ICICI too had some time ago worked out a scheme titled Dequity, which represented a higher than usual debt-equity mix.

SEBI, it is felt, has further stayed vigilant with regard to the issue of assured returns - once a popular element in the realm of mutual funds. It has very recently refused to grant permission to a fund that wanted to provide a small loyalty bonus to investors on a selective basis. This was in the case of an MIP that threw in a number of other benefits and also wanted to reward senior citizens who chose to subscribe its IPO. While the other benefits were okayed, SEBI did not see enough logic in the reward proposal, sources said.

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