Despite SEBI mandate, mutual funds slow in merging similar schemes

Tanya Thomas Mumbai | Updated on January 12, 2018 Published on January 12, 2017


Since 2010, the industry has merged a mere 192 schemes out of a total of over 3,000

It has been slow going, but the mutual fund industry is cutting through the clutter and gradually reducing the number of similar schemes it offers.

However, with only 192 schemes merged since securities market regulator SEBI asked the industry to join similar schemes, work is far from done.

In 2010, the Securities and Exchange Board of India (SEBI) told mutual funds that they should start merging schemes with similar investment strategies and portfolios.

Six years later, the industry has merged 192 schemes, out of a universe of over 3,000. Of this, the industry offers a little over 350 open-ended equity and balanced funds (a mix of debt and equity) and close to 1,500 debt schemes.

Kaustubh Belapurkar, Director of Manager Research, Morningstar, noted that the bulk of scheme mergers have actually happened due to fund houses buying out each other.

The data validate this.

The highest number of mergers, for instance, were by Birla Sun Life Mutual Fund. Of its 27 scheme mergers, 16 happened in 2014, when it absorbed ING Mutual Fund.

L&T Mutual Fund also shows a higher figure because of its 2011 acquisition of Fidelity.

“Very few schemes actually are being absorbed by an AMC into its own funds and not triggered by takeovers. It’s mostly a work in progress,” Belapurkar said. “Instead, fund managers are trying to create nuanced differences.” One large-cap equity fund may invest in 50 stocks, another may have a more focussed approach.

However, fund managers also have an economic incentive to maintain a higher number of funds. Manoj Nagpal, MD and CEO, Outlook Asia Capital, said it is in the fund house’s interest to not merge similar schemes. “When you merge three schemes of, say, ₹500 crore each, the corpus becomes bigger but then the graded expense ratio calculation sets in. So the fund’s overall income falls than when it keeps these schemes separate. Fund houses have no economic benefit in merging their schemes pro-actively.”

While it appears that there’s an impasse between the regulator and the industry, SEBI — instead of forcing fund houses upfront to merge similar schemes and not allow duplication to creep in — has been going slow on clearing new fund offers.

Published on January 12, 2017
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