If Sebi asked me what are the factors that are really bothering me about the mutual fund industry, I could make a long list. However let me get to one very important item on that agenda.

“Naming of a fund”

When I saw that SBI had created a fund called “SBI Blue Chip fund” I found it odd. When we said ‘Bluechip fund’ we were clear that we meant the ‘Franklin India Blue chip fund’. Suddenly the industry is full of ‘blue chip funds’.

Hdfc has been on the recieving end in ‘Prudence’ but it has also used ‘Dynamic Ratio PE Fund of Funds’ – which is a ‘sound alike’ of the Franklin Templeton Fund!

Once upon a time SEBI did come out banning names like ‘Can Double’ and BOI Triple and Boinanza kind of names. Clearly some of these funds were PROMISING double in 3 years or some shit like that. Luckily Sebi stepped in and abolished these names. However it did not do enough.

Sebi has been guilty of the biggest fraud in the mutual fund industry. The ‘Monthly Income Plan’. For younger people let me tell you the history. When Sebi banned ‘assured return’ schemes UTI had to close its ‘Monthly Income schemes’. These were GENUINE income schemes where your principal was protected (Capro?).

However the Historic mistake of allowing ‘Monthly Income plans’ is now being seen as a fraud. Some of us saw it as a fraud to get the money from UTI’s fleeing investor – and at least in my mind it is etched like that.

Some other words which I do not understand (but I am sure the veterans in the fund industry do) are the ‘Opportunities’ funds and the ‘Focused’ funds. Is there some criteria for allowing the word ‘opportunities’ or ‘focused’ in their names. I mean can there be a ‘focused’ fund with 45 scrips and another focused fund with 12 schemes? I do not understand, hence asking.

What I think Sebi should do (but will not, of course) are the following:

a) stop allowing the word ‘Monthly Income plan’ : 99% of the sales people do not know that it is not cap protected, and I am not exaggerating please.

b) ban confusing words like ‘dividend’ – call it ‘surplus distribution’ . As the ‘dividend’ amount is the same the %age that each person gets is different. So it should NOT be declared as a percentage. This can happen ONLY if you remove the stupid ‘face value’ concept.

c) ban dividends in equity schemes. Again call it distribution and tell people that the end value can be less than the dividend + residual value. Not many people understand this.

d) Be clear that ‘balanced funds’ will all have 65% in equity. Stop calling them balanced funds. Even existing funds with more than 50% in equity should be RECHRISTENED as equity funds.

 

Responsible fund houses can go a step further and ban dividends – let people redeem from Growth option – as much as they need. Why should the fund manager decide how much dividend to pay?

Sorry Sebi my limited item agenda for you is this. Yes of course there are more points….later on…

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