If you invest in mutual funds (MFs) but still haven’t got September-end fund fact sheets, don’t be surprised. There has been a slight delay from fund houses this time because of the new norms issued by the capital markets regulator, Securities and Exchange Board of India (Sebi), on how MFs should advertise their performance. Most of the fund houses are expected to issue their latest fact sheets by the second week of September. Says Surajit Misra, national head (mutual funds), Bajaj Capital Ltd, one of India’s largest retail MF distributors: “We haven’t heard anything from fund houses about September-end fact sheets which are not yet out. I think they are waiting for some clarifications from Sebi before they can finalize fact sheets.”
Waiting for clarifications
In a circular issued on 22 August, Sebi asked MFs to report their scheme performances in a new manner. It asked schemes that are more than a year old to display one-year performances for as many unique one-year periods there are, going back from the calendar quarter preceding the date on which the performance is to be published. For instance, if a fund house wishes to advertise its scheme’s performance as on 30 September (and which was launched on 1 January 2007), it will need to show its performance for four one-year time periods (1 October-30 September). The returns have to be given in percentage form and also in terms of how Rs 10,000 has grown during these one-year time periods. Previously, most equity funds used to show their past one-, three- and five-year returns.
However fund houses told us that few things remained unclear. For instance, Sebi has mandated common benchmark indices across MF schemes. While equity schemes are meant to be benchmarked against Sensex or Nifty indices, a long-term debt fund must be benchmarked against 10-year government securities (G-sec) and a short-term debt fund needs to be benchmarked against one-year treasury bill, a government of India security. “But how do we measure returns from a 10-year G-sec since the 10-year G-sec changes every year? Besides a debt security has a coupon rate and also makes capital gains or losses, so exactly how to account for both these streams of income is not very clear,” said a debt fund manager of a private sector fund house on condition of anonymity. Liquid funds were another grey area as these are very short-term funds where investments are made for about a few days to a month; prescribed time limits were not adequate.
Sebi clarified a few of these issues in a letter dated 5 October that it sent to the Association of Mutual Funds in India. It said that liquid funds can give out 7, 15 and 30 days performances. Hybrid funds, those that invest in equity and debt markets, are also free to choose their own benchmark indices. “Rest of the details are already ready with us. Now that these clarifications have come, we are ready to print and distribute our fact sheets conforming to the new norms in a couple of days,” says the head of marketing of a public sector fund house.
We checked out the websites of the 16 fund houses to check what they have been up to since the month of August when Sebi issued the guidelines. While all of them issued August-end fact sheets, most of them did not give performances of the schemes.
“Since the regulation came in mid-August, it gave us very little time to adjust to the new scenario. So, most of us thought it’s best to keep the performance space blank in our fact sheets. Eventually, we will all start displaying performances,” says the chief executive of one of the top fund houses in the country, who declined to be named.
SBI Funds Management Ltd gave the performances of its schemes in the old format. Only three fund houses, UTI Asset Management Co. Ltd, DSP BlackRock Investment Managers Ltd and Kotak Mahindra Asset Management Co. Ltd gave out performances of their schemes in the new Sebi-prescribed format. Some funds houses such as Reliance Capital Asset Management Co. Ltd and Franklin Templeton Asset Management India Ltd have not yet issued their August-end fact sheets at the time of going to print.