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 an enormous step in the direction of empowering traders to make higher scheme decisions.  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 completely different classes.  Whereas there’s a want for SEBI to step in, traders additionally must be vigilant, else we might find yourself holding a scheme that’s fairly completely different from what we anticipated it to be. 

On this publish, I need 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 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 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 provides traders 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.  Considered one of these schemes is classed as a ‘Targeted’ fund, whereas the opposite is classed as a ‘Multi Cap’ fund.  For those who had been in a position to learn the detailed descriptions (that are in smaller print), you may need been in a position to know which advert is for which scheme.  However since these are web site adverts, which many can have seen (or will see) on cellular units, the headlines develop into all of the extra vital.  Based mostly on the headlines, are you able to determine 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 will probably be determined by a technique of tactical asset allocation.  Because it occurs, at the very least one fund home both has an awfully 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 determine which of those is the ‘Aggressive Hybrid’ fund and which is the ‘Balanced Benefit’ fund?

This fall: Misleading Danger Profile

‘Credit score Danger’ Funds are required to have at the very 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 danger than every other class of debt funds.  Given beneath is the newest 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 determine which of those is the ‘Credit score Danger’ fund?