When Scheme Variations Are Erased : Mutual Fund Critic

SEBI’s determination to create clearly outlined scheme classes (and to restrict fund homes to at least one scheme per class) was an enormous step in direction of empowering buyers to make higher scheme decisions.  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 might 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 couple of examples of the number of methods wherein fund homes have tried to blur the variations between schemes in several 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 one among 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 buyers the chance to take part within the development story of right this moment’s comparatively medium sized however rising corporations 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.  One in all these schemes is classed as a ‘Targeted’ fund, whereas the opposite is classed as a ‘Multi Cap’ fund.  Should 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 can have seen (or will see) on cell gadgets, the headlines grow to be 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 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 shall be determined by way of a means 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 every 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 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?

This autumn: Misleading Danger Profile

‘Credit score Danger’ Funds are required to have at the least 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 danger than every other class of debt funds.  Given beneath is the most recent 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?