When Scheme Variations Are Erased : Mutual Fund Critic


SEBI’s resolution to create clearly outlined scheme classes (and to restrict fund homes to at least one scheme per class) was a giant step in the direction of empowering traders 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 successful.  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, traders additionally have to be vigilant, else we might find yourself holding a scheme that’s fairly totally different from what we anticipated it to be. 

On this submit, I need to share a couple of examples of the number of methods through which fund homes have tried to blur the variations between schemes in several classes.  I’ve introduced these within the type of a brief quiz.  There’s a hyperlink to the solutions on the finish of the submit.

Q1: Misleading Descriptions

Given under 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 classed as a ‘Mid Cap’ fund.  Based mostly on these descriptions, are you able to determine which certainly one of these is the actual ‘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 supplies traders the chance to take part within the progress story of at present’s comparatively medium sized however rising firms which have the potential to be well-established tomorrow.

Q2: Misleading Promoting

Given under are masked banner advertisements for 2 fairness schemes managed by a single fund home.  Considered one of these schemes is classed as a ‘Centered’ fund, whereas the opposite is classed as a ‘Multi Cap’ fund.  For those who had been capable of learn the detailed descriptions (that are in smaller print), you may need been capable of know which advert is for which scheme.  However since these are web site advertisements, which many could have seen (or will see) on cellular gadgets, the headlines change into all of the extra essential.  Based mostly on the headlines, are you able to determine which of those is the precise ‘Centered’ 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 might take into account 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 likely be determined by way of a means of tactical asset allocation.  Because it occurs, no less than 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.  But it surely has had greater than a passing resemblance to the fairness allocation of the ‘Aggressive Hybrid’ fund managed by the identical fund home.  Given under is the unhedged fairness allocation for the final 12 months for the 2 schemes.  Based mostly on this info, are you able to determine which of those is the ‘Aggressive Hybrid’ fund and which is the ‘Balanced Benefit’ fund?

Equity Allocations

This fall: Misleading Threat Profile

‘Credit score Threat’ Funds are required to have no less than 65% of their portfolio in securities which can be rated AA or decrease.  It’s usually anticipated that these funds will carry a better credit score threat than another class of debt funds.  Given under is the most recent score profile, yield, and maturity of the portfolios of three debt funds, managed by a single fund home.  Based mostly on this info, are you able to determine which of those is the ‘Credit score Threat’ fund?

Fund GFund HFund I
Portfolio Composition by Ranking
  Sovereign/ AAA/ Money16%15%12%
  AA+9%9%11%
  AA and decrease75%76%77%
Common Maturity (years)3.13.42.9
Portfolio Yield11.7%11.4%11.7%

For those who’d prefer to see the solutions, click on right here.

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