Hundreds of mutual fund plans, both in debt and equity schemes, are set to breathe their last tomorrow (September 30). No fresh investments will be possible in these plans beginning October 1, as fund houses are implementing “One scheme, one plan” policy announced by the Securities and Exchange Board of India (Sebi). Even fresh instalments in special services such Systematic investment plans (SIP), systematic transfer plans (STP) will be in these plans will be discontinued by November 1. Existing investments in these discontinued plans will be allowed to continue until these are redeemed or shifted to "continuing" plans.
The move is expected to reduce the clutter and make life easy for the investors who have had struggle with thousands of plans under hundreds of schemes launched by over 40 players in the industry.
Most top fund houses including Reliance, HDFC, DSP Blackrock, Kotak, BNP Paribas have already notified plans which will be “discontinued”. At least twenty plans under different Reliance mutual fund schemes are to be discontinued, according to the company’s addendum dated September 28. DSP Blackrock will discontinue 15 HDFC will discontinue six plans. Kotak Mahindra will discontinue four and BNP Paribas five. Typically, funds have chosen to discontinue institutional plans in equity schemes and retail plans of debt schemes, as per notifications reviewed by Business Standard. This is likely to soften the impact of this restructuring as investor concentration in these schemes are lower.
These changes are part of a massive restructuring exercise triggered by the recent Sebi efforts to rejuvenate the industry. Fund houses have also announced new expense structures as equity schemes are expected to charge as much as 2.7 per cent per annum and debt schemes up to 2.45 per cent. Thus funds will be leaner, more expensive and possibly more attractive to sell for the distributors.
“From next week, we will see a new structure, very different from what we have seen over the past couple of years. Funds have announced scrapping of plans, hike in expenses and several other changes. We are expecting clarity to emerge next week on what kind of changes are made to payouts to the distributors,” said J Krishnan of Integrated Enterprises, a corporate distributor.
Clarity is awaited on the fate of SIP investments in these schemes as different fund houses have announced different kinds of treatment of these transactions. According to DSP Blackrock notification, “Subscriptions (in these discontinued plans) arising out of SIP/STP-In registered prior to October 1, 2012 shall be discontinued.” with effect from November 1. Reliance Mutual fund said “special facilities such as SIP/STP” shall continue as per existing terms and conditions “until further notice.”
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“Distributors can take the consent of investors to move their SIPs to the continuing plan. For example, if the plan A, in which the investor had an SIP is discontinued. The investor can opt for the fresh instalments of the SIP to be deposited in the continuing plan say Plan B. Thus, while the existing investment continues to remain in plan A, the fresh investments will go to Plan B,” said Vikas Sachdeva, CEO, Edelweiss Asset Management.
On the other hand, if the investor decides to exit the discontinued plan, he may have to face tax implications. Surjeet Mishra- National head- Mutual Funds, Bajaj Capital, said,” There could be incidence of capital gains tax, if the investor exits from the discontinued plan to invest in the continuing one.”
Till now each mutual fund scheme had different plans for different types of investors. Therefore, each scheme came with multiple plans such as retail plan, wholesale plan regular plan, institutional plan, super-institutional plan etc catering to different classes of investors.
This led to allegations that fund houses treated big investors favourably often putting the small investors at a disadvantage.