If you are a mutual funds investor, today a few things have changed for you. These changes have been brought about by the regulator Sebi in order to boost the industry. Of these, One Scheme One Plan is one of the biggest. For more clarity, read on.
Before the circular: “Prior to the circular, different investors were treated differently based on the amount they invested, even in the same scheme,” said Rajesh Krishnamoorthy, Managing Director, fundsupermart.com. For instance, an institutional investor putting in Rs 2 crore and a retail investor parking Rs 5,000 in the same liquid fund had to bear different expense structures.
This ensured that institutional investor, who had a lower expense ratio, got a better deal than a retail investor. “Fund houses used to charge the highest expense structure to retail investors, followed by institutional investors and the lowest to super institutional investors,” said Srikanth Meenakshi, founder and director, FundsIndia.com.
Sebi has just stopped this discriminatory practice to ring in parity among all investors.
What it means for you: Even if it’s just now that the change has come about, many AMCs have behaved in a similar manner said Krishnamoorthy. “It’s just been a couple of days now, but we have seen that in most fixed income funds, liquid funds, short-term funds, AMCs have retained the expense structure of institutional investors.
As far as equity oriented funds goes, not much effect is seen” In other words, now under the One Scheme–One Plan scheme, the retail investor will get the benefit of a lower expense structure, and also enable them to invest in schemes which previously had a higher minimum investment amount.
“For instance, Religare ultra short fund previously had a minimum amount investment of Rs 2 crore. It has been brought down to Rs 5000. So, now retail investors can also invest in this fund,” said Meenakshi.
However, many fund houses such as HDFC Mutual Fund and Kotak Mutual Fund have discontinued some plans, and will not be available for further investments. For instance, as per a notification on the HDFC Mutual website: HDFC Arbitrage Fund gave both retail plan as well as wholesale plan prior to 28 September.
Going forward, it will offer only the retail plan option. “Even if some fund houses have discontinued some plans, one should not make it bigger issue than it is. Reason being, that few plans have been discontinued. The fund house will continue to offer, most of it’s schemes, as per new guidelines,” said Meenakshi.
Bear in mind that the single plan structure would apply to all new schemes with effect from today. The existing schemes with multiple plans (based on investment amount) will also accept new subscriptions only under one plan.
Mutual funds will stop accepting fresh investments in over 100 schemes with systematic investment plan (SIP) option, as market regulator Sebi has asked fund houses to move to One Scheme One Plan structure, according to a PTI report.
Looks like One Scheme, One Plan will work in favour of retail investors as of now. More clarity is expected emerge over this week, as we see how fund houses bring about the necessary course correction.
Keep tracking this space for updates.