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

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...

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...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
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