Shares of oil & gas companies surged 7%, packaging stocks gained 5%, building material and...
SEBI’s consolidation process is pro-investor
SEBI has been informally asking fund companies what purpose does it serve to have dozens of different schemes, with very similar objectives, which invest in the same kind of stocks. Many of these schemes were simply asset-gathering ploys, launched during the last bull market. Partly due to the regulator’s prodding and partly due to the fact that funds are finding so many schemes unwieldy, mergers of schemes are taking place. And SEBI’s new norms have helped the process. Fewer schemes are in the best interest of the investors.
Under the earlier norms, any merger of schemes was viewed as a change in the fundamental attributes of the surviving scheme and, hence, it was mandatory for fund houses to follow certain procedures laid down by the regulator. Asset management companies were required to give the unit-holders the option to exit the schemes to be merged at their prevailing NAVs (net asset values) without exit load. In its new circular, SEBI has made merger procedures less tedious and has allowed more schemes with almost similar features to be merged or consolidated. Further, the circular says that the merger or consolidation would not necessarily mean change in fundamental attributes of the surviving scheme, if there are no changes in the features of the surviving scheme—if the fund house is able to establish that unit-holders’ interest is not adversely affected by the merger. Therefore, a fund house is not required to offer an exit option to the investors of the existing scheme.
Simply put, if scheme A is merged with scheme B of the same fund house, after the merger, only scheme B will exist and if there is no change in any fundamental feature such as the investment objective and asset allocation of scheme B, then the fund house need not offer an exit option to investors. But, the fund house has to offer an exit option to unit-holders in scheme A and provide unit-holders in both the schemes all relevant information.