When Scheme Variations Are Erased : Mutual Fund Critic

SEBI’s determination to create clearly outlined scheme classes (and to restrict fund homes to 1 scheme per class) was a giant step in the direction of empowering traders to make higher scheme decisions.  It’s been a yr 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 completely different classes.  Whereas there’s a want for SEBI to step in, traders additionally should be vigilant, else we may find yourself holding a scheme that’s fairly completely 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 wherein 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 put up.

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.  Primarily based on these descriptions, are you able to determine which one in all 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 provides traders the chance to take part within the progress story of at the moment’s comparatively medium sized however rising firms which have the potential to be well-established tomorrow.

Q2: Misleading Promoting

Given under are masked banner adverts 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.  In the event you 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 adverts, which many could have seen (or will see) on cell units, the headlines turn out to be all of the extra essential.  Primarily based on the headlines, are you able to determine which of those is the precise ‘Centered’ fund?

Fund C:

Fund D:

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 might be determined by way of a technique 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 slender band and has had little resemblance to that of some other ‘Balanced Benefit’ fund.  Nevertheless it 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.  Primarily based on this data, are you able to determine which of those is the ‘Aggressive Hybrid’ fund and which is the ‘Balanced Benefit’ fund?

This fall: Misleading Threat Profile

‘Credit score Threat’ Funds are required to have at the least 65% of their portfolio in securities which are rated AA or decrease.  It’s typically anticipated that these funds will carry the next credit score threat than some other 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.  Primarily based on this data, are you able to determine which of those is the ‘Credit score Threat’ fund?