Fund houses certainly are not falling over each other to launch Fixed Maturity Plans (FMPs). And now, they are even encountering stumbling blocks when launching interval funds. In the first two mo
06-Apr-2009 •Research Desk
Fund houses certainly are not falling over each other to launch Fixed Maturity Plans (FMPs). And now, they are even encountering stumbling blocks when launching interval funds.
In the first two months of 2009, eight open-ended interval schemes (including their plans and options) were forced to close down as they could not fulfil the mandatory provision laid down by the regulator, the Securities and Exchange Board of India (SEBI).
SEBI regulations require all funds to have a minimum of 20 investors with no single investor accounting for more than 25 per cent of the corpus of a scheme/plan. These schemes, at the end of the last specified transaction period, were not able to meet these requirements. Consequently, they had to wind up.
All these schemes were from four fund houses - DBS Chola, Fortis, HSBC and IDFC. What exactly are interval funds?
In reality, an interval fund is an enhanced version of an FMP. Both invest in similar instruments. The only differentiator being that FMPs have a fixed tenure, after which they shut down. On the other hand, interval funds are ongoing and re-open for purchase or sales during intervals. These intervals are pre-determined time periods which could be monthly, quarterly or even annually.
Besides that fundamental difference in structure, fund houses also find it more efficient launching interval funds, as compared to FMPs. For one, there is no filing fee and neither does it have to be mandatorily listed on a stock exchange. This gets reflected in the expense ratio of the schemes. Current active FMPs have expense ratios ranging between 0.03 per cent and 2.11 per cent. The same for interval funds is 0.01 - 1.88 per cent. Though the difference is not very significant it matters, since it is a debt investment where every basis point counts.
However, the one new guideline which has hit both FMPs and interval funds is the banning of providing an indicative yield at the time of launch.
Currently, there are 215 active, open-ended interval schemes (including plans and options). The total assets managed under these schemes were Rs 3,852.4 crore (February 2009), a sharp fall of 88.7 per cent from Rs 34,243 crore in September 2008.
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