Skip to main content

What to look for when mutual Fund Schemes Merge?

Where there is a will there is a way seems to be the proverb of the season. The SEBI has made its discomfort obvious to asset management companies queuing up for necessary clearances to launch new funds. With very less difference between several offerings from the same fund house, the market regulator has cracked the whip on AMCs and is selective in approving new funds.

 

Fund houses are taking the cue and looking at clubbing some of the existing funds with similar features to trim its operations. To support such a move, Sebi has recently came out with a circular easing the merger norms of mutual fund schemes. In the earlier norms, any merger of schemes was viewed as change in the fundamental attributes of the surviving scheme and hence it was mandatory for fund houses to follow certain procedures laid down by the regulator in this regard.

 

This entailed mutual funds to send letters to each unit holders of the schemes to be merged disclosing all relevant information on the investment objective, asset allocation and the main features of the new consolidated scheme; basis of allocation of new units by way of a numerical illustration; percentage of total NPAs and percentage of total illiquid assets to net assets of the individual schemes as well as in the consolidated scheme and the tax impact of the consolidation of schemes on the unit holders.

 

Moreover, AMCs were required to give the unit holders the option to exit the schemes to be merged at their prevailing NAVs without exit load. In its new circular, Sebi has made merger procedures less tedious and allow more schemes with almost similar features to be merged or consolidated. Further, the circular says that the merger or consolidation would not necessarily mean change in fundamental attributes of the surviving scheme if there are no changes in the features of the surviving scheme if the fund house is able to establish that unit holders' interest is not adversely affected by the merger. Therefore, a fund house is not required to offer exit option to the investors of the existing scheme.

 

Simply put, if scheme A is merged with scheme B of the same fund house; after the merger only scheme B will exist. If there is no change in any of the fundamental features such as investment objective, asset allocation of scheme B, then the fund house need not offer an exit option to investors. However, the fund house has to offer exit option to unit holders in scheme A and inform unit holders in both the schemes tall relevant information.

 

SEBI wants fund houses to merge similar kind of schemes so as to reduce the number of schemes run by fund houses and the recent circular is move towards this larger goal. There are 254 equity diversified funds, excluding 48 tax-saving funds, besides index and sector funds as on October 31, 2010. That's too many funds for not so many retail investors. This move is a clear reminder to fund houses that it's time to streamline their product portfolio and clear the mess they created with the NFO frenzy in the past.

 


Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now