Thursday, September 29, 2022
HomeMutual FundWhen Scheme Variations Are Erased : Mutual Fund Critic

When Scheme Variations Are Erased : Mutual Fund Critic


SEBI’s resolution to create clearly outlined scheme classes (and to restrict fund homes to 1 scheme per class) was a giant step in direction of empowering buyers to make higher scheme selections.  It’s been a 12 months since that got here into impact and for essentially the most half, it’s been a hit.  Sadly, some funds homes have discovered (or are discovering) methods to wipe out the variations between schemes throughout totally different classes.  Whereas there’s a want for SEBI to step in, buyers additionally must be vigilant, else we might find yourself holding a scheme that’s fairly totally different from what we anticipated it to be. 

On this put up, I wish to share a number of examples of the number of methods by which fund homes have tried to blur the variations between schemes in numerous classes.  I’ve introduced these within the type of a brief quiz.  There’s a hyperlink to the solutions on the finish of the put up.

Q1: Misleading Descriptions

Given beneath are the descriptions of two open-end fairness funds managed by a sure fund home.  These descriptions have been taken from the fund home web site.  One of many schemes is assessed as a ‘Mid Cap’ fund.  Based mostly on these descriptions, are you able to establish which certainly one of these is the true ‘Mid Cap’ fund?

Fund A:

An open ended fairness scheme predominately investing in mid cap shares

Fund B:

…is primarily a Mid-cap fund which provides buyers the chance to take part within the development story of in the present day’s comparatively medium sized however rising firms which have the potential to be well-established tomorrow.

Q2: Misleading Promoting

Given beneath are masked banner advertisements for 2 fairness schemes managed by a single fund home.  Considered one of these schemes is assessed as a ‘Targeted’ fund, whereas the opposite is assessed as a ‘Multi Cap’ fund.  If you happen to had been in a position to learn the detailed descriptions (that are in smaller print), you may need been in a position to know which advert is for which scheme.  However since these are web site advertisements, which many can have seen (or will see) on cell gadgets, the headlines turn out to be all of the extra essential.  Based mostly on the headlines, are you able to establish which of those is the precise ‘Targeted’ fund?

Fund C:

Ad blacked out Fund 1

Fund D:

Ad blacked out Fund 2

Q3: Misleading Allocations

Going by SEBI’s definition, within the so-called ‘Balanced Benefit’ funds, the fairness/ debt allocation is required to be managed “dynamically”.  Whereas some could think about that time period to be all-encompassing, from what I’ve gathered, the aim of getting this class is to group these funds the place the fairness/ debt combine will probably be determined by way of a strategy of tactical asset allocation.  Because it occurs, at the least one fund home both has a very restrictive interpretation of what ‘dynamic’ means or has chosen to not make tactical calls.  The fairness allocation of its ‘Balanced Benefit’ fund has remained in a remarkably slim band and has had little resemblance to that of another ‘Balanced Benefit’ fund.  However it has had greater than a passing resemblance to the fairness allocation of the ‘Aggressive Hybrid’ fund managed by the identical fund home.  Given beneath is the unhedged fairness allocation for the final 12 months for the 2 schemes.  Based mostly on this data, are you able to establish which of those is the ‘Aggressive Hybrid’ fund and which is the ‘Balanced Benefit’ fund?

Equity Allocations

This autumn: Misleading Danger Profile

‘Credit score Danger’ Funds are required to have at the least 65% of their portfolio in securities which are rated AA or decrease.  It’s usually anticipated that these funds will carry a better credit score danger than another class of debt funds.  Given beneath is the newest ranking profile, yield, and maturity of the portfolios of three debt funds, managed by a single fund home.  Based mostly on this data, are you able to establish which of those is the ‘Credit score Danger’ fund?

Fund G Fund H Fund I
Portfolio Composition by Ranking
  Sovereign/ AAA/ Money 16% 15% 12%
  AA+ 9% 9% 11%
  AA and decrease 75% 76% 77%
Common Maturity (years) 3.1 3.4 2.9
Portfolio Yield 11.7% 11.4% 11.7%

If you happen to’d wish to see the solutions, click on right here.

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