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 the direction of empowering buyers to make higher scheme selections.  It’s been a 12 months since that got here into impact and for probably 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 should be vigilant, else we may find yourself holding a scheme that’s fairly totally different from what we anticipated it to be. 

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

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 classed 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 progress story of as we speak’s comparatively medium sized however rising firms which have the potential to be well-established tomorrow.

Q2: Misleading Promoting

Given beneath are masked banner adverts for 2 fairness schemes managed by a single fund home.  Considered one of these schemes is classed as a ‘Targeted’ fund, whereas the opposite is classed as a ‘Multi Cap’ fund.  If you happen to had been capable of learn the detailed descriptions (that are in smaller print), you might need been capable of know which advert is for which scheme.  However since these are web site adverts, which many may have seen (or will see) on cell gadgets, the headlines develop into all of the extra necessary.  Based mostly on the headlines, are you able to establish which of those is the precise ‘Targeted’ 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 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 shall be determined by way of a means of tactical asset allocation.  Because it occurs, a minimum of 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.  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 beneath is the unhedged fairness allocation for the final 12 months for the 2 schemes.  Based mostly on this info, are you able to establish which of those is the ‘Aggressive Hybrid’ fund and which is the ‘Balanced Benefit’ fund?

This autumn: Misleading Danger Profile

‘Credit score Danger’ Funds are required to have a minimum of 65% of their portfolio in securities which are rated AA or decrease.  It’s typically anticipated that these funds will carry a better credit score danger than some other class of debt funds.  Given beneath 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 establish which of those is the ‘Credit score Danger’ fund?