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Mutual funds (MFs) are increasingly transferring securities from one scheme to another within the same fund house. The value of such inter-scheme transfers in the MF sector touched Rs 70,702 crore for the financial year ending in March 2015 (FY15); according to regulatory data. It is up from Rs 64,500 crore in FY14, and Rs 14,040 crore in FY13. An inter-scheme transfer is the transfer of a security from one scheme of a fund house to another, essentially one scheme selling to another; instead of selling it in the market.
Each of the first three months of the latest financial year also showed a larger value of such transfers taking place than the corresponding months in the previous year. If the trend continues, then the current year would see even larger transfers than FY15. But the regulator is now said to be keeping a close watch.
Securities and Exchange Board of India (Sebi) Chairman U K Sinha warned the sector against flouting norms during such transfers.
"In some instances, we have also found that valuations and inter-scheme transfers are not exactly according to the Sebi requirements…I want you to note…that we are watching. We are aware of what is happening….I want to give you an opportunity…please try and make amends," Sinha said at the Confederation of Indian Industry's annual MF summit.
"The mutual fund business is a business of trust. Even if Rs 700 crore out of the Rs 70,000 crore is done in a suspicious way, then it creates an issue. It is good that the regulator is keeping an eye on these transfers," said Dhirendra Kumar, chief executive officer of fund tracker Value Research.
The bulk of the transfers are to meet liquidity issues. "The bond market is relatively illiquid, so it might be difficult to sell off a security when redemptions come in. So, fund houses look to make inter-scheme transfers to meet the shortfall. It could also be due to the transfer of assets to a new scheme when the tenure of an existing one ends," said Kumar.
The largest value on record of such inter-scheme transfers is in FY11, at Rs 3.19 lakh crore. A fund manager with one of the top 10 fund houses said that transfers are mostly done for short-term paper, with a tenure of 15-20 days or less. It could also be to manage transactions where it is felt no interaction with the market is required.
"They don't buy long-duration paper, except perhaps in smaller fund houses which could face problems because market lots are not available in quantities that they want," said the person.
