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 decisions.  It’s been a yr since that got here into impact and for probably 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 completely different classes.  Whereas there’s a want for SEBI to step in, buyers additionally have to 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 by 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 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 assessed as a ‘Mid Cap’ fund.  Based mostly on these descriptions, are you able to establish which one in every 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 provides buyers the chance to take part within the progress 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 under are masked banner advertisements for 2 fairness schemes managed by a single fund home.  One among these schemes is assessed as a ‘Targeted’ fund, whereas the opposite is assessed 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 advertisements, which many can have seen (or will see) on cell gadgets, the headlines develop into 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:

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, 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 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 under 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 fall: Misleading Threat Profile

‘Credit score Threat’ Funds are required to have no less than 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.  Based mostly on this data, are you able to establish which of those is the ‘Credit score Threat’ fund?