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

On this submit, I need to share a number of examples of the number of methods wherein fund homes have tried to blur the variations between schemes in numerous classes.  I’ve introduced these within the type of a brief quiz.  There’s a hyperlink to the solutions on the finish of the submit.

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.  Primarily based 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 provides traders the chance to take part within the progress story of at the 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.  When you 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 gadgets, the headlines turn into all of the extra vital.  Primarily based 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 think about 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 can be determined by way of a strategy of tactical asset allocation.  Because it occurs, at the very 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 slim band and has had little resemblance to that of another ‘Balanced Benefit’ fund.  However 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.  Primarily based 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 Danger Profile

‘Credit score Danger’ Funds are required to have at the very least 65% of their portfolio in securities which might be rated AA or decrease.  It’s usually anticipated that these funds will carry the next credit score danger than another 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.  Primarily based on this data, are you able to establish which of those is the ‘Credit score Danger’ fund?