Checking redundancy

Unlike several businesses where new launches and models are a driver for sales to go up, investments in new mutual fund schemes are not necessarily in the interest of investors. Of course, there are reasons to invest in a new fund scheme only when the scheme has a new investment idea to offer. However, it is recommended to invest money in a fund that has a proven track record and credentials than invest in a new fund, which is yet to prove itself. Moreover, time and again, there have been plenty of studies that point out that investing in an NFO at Rs 10 per unit is not necessarily a great idea.

To check on errant AMCs from introducing new funds into the market, the market regulator SEBI has been on a drive to push AMCs to merge similarthemed mutual funds. In fact, the push was strong last year when SEBI made it clear that it would not clear new schemes until fund houses merged existing ones with similar characteristics. The push has found the desired results with AMCs getting on a drive to merge schemes with similar traits. Some of it is also to do with mergers and acquisitions in the industry.

Even among AMCs that wanted to play on a lean portfolio of offerings, the hindrance to merge schemes was the tax implications they faced. This hurdle was also sweetened in this year’s Budget when the capital gains tax was exempted on merger of plan—dividend, growth, and bonus—within a scheme, which followed the 2015 Budget where in the capital gains tax was done away with scheme mergers. The results are there to see (See: Trim and fit).

This year, more than 60 mutual fund schemes have been merged and many are on the works. The move will help investors explore only as many funds as needed, instead of looking at hundreds of schemes to arrive at their choice. This is in-line with the annual Outlook Money Awards criteria to zero in on the best performing AMC, as our evaluation process encourages AMCs which have a portfolio of offerings that has fewer redundancies.

olmdesk@outlookindia.com