Investors can now identify schemes that suit their
investment goals, style and the duration of investment.
This exercise of reclassification could also be a big boost
for the do-it-yourself investor who depend on online
and robo advisory. Distinct categorisation of schemes
will enable better comparison of funds within the same
category. It will help investors identify the right schemes
by facilitating a like-for-like comparison of funds.
Asset Management Companies: AMCs will have to
realign their schemes to the new norms. This may entail
changing the fundamental attributes of some schemes
or merging and winding up others. Merging of schemes,
changes in fundamental attributes of schemes, rebranding
and marketing of schemes will gather momentum. Since
fund houses will now be forced to merge duplicate
schemes within the same categories, it may sharply
increase the size of certain funds. Now, the fund
managers’ skills and expertise will be put to test when
they have to manage the sudden rise in scheme’s assets.
The merger of schemes will result in the renegotiation of
distributor commissions costs. Further, there could be an
increase in transaction cost on the investor, as fund may
rebalance or churn the portfolio to ensure that the fund
aligns with the category norms. While the new norms
are likely to lead to better adherence to the fund style
and mandate, it may result in underperformance of some
schemes during the interim.
SEBI is seeking to standardise
and bring uniformity in the
functioning of AMC schemes
Distributors: The categorisations, mergers and name
changes will make the past performances of many
schemes meaningless. In such a backdrop, distributors
will have to rely on qualitative data to assess funds.
During this period, the performance momentum of
some of the schemes may get disrupted for a few months
as recalibration of investments gets underway. It is
therefore important that distributors appreciate the
long-term value creation of mutual funds rather than
short-term imbalance. For financial advisors, the task of
aligning funds to investor’s goal will become a lot easier
and benchmarking will become sharper. Distributors can
help in offering the right products to the customer and
make them clearly understand the purpose of the fund.
To conclude, the categorisation and rationalisation
exercise might create short-term imbalances, but in the
long term, this will indeed have a positive impact on the
industry.
The author is Chief Investment Officer,
Equity and Debt, LIC Mutual Fund
www.outlookmoney.com July 2018 Outlook Money
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