The Securities and Exchange Board of India (SEBI) has relaxed the norms on merger and consolidation of mutual fund schemes. The regulator has said that any merger or consolidation would not be seen as change in fundamental attributes of the surviving scheme if there have been no changes in the features of the surviving scheme and the fund house is able to establish that unit holders’ interest is not adversely affected by the merger.
SEBI has issued a circular to this effect recently. The circular reverses the June 2003 ruling of SEBI that viewed any merger or consolidation as changes in the fundamental attributes of the surviving scheme and hence made it mandatory for fund houses to follow certain procedures laid down by the regulator in this regard.
In case of merger of schemes, mutual funds are required to send a letter to each unit holders disclosing all relevant information on the investment objective, asset allocation and the main features of the new consolidated scheme; basis of allocation of new units by way of a numerical illustration; percentage of total NPAs and percentage of total illiquid assets to net assets of the individual schemes as well as in the consolidated scheme and the tax impact of the consolidation of schemes on the unitholders.
Fund houses are also required to give the unit holders the option to exit the schemes to be merged at their prevailing NAVs without exit load.
The recent SEBI order states that mutual fund will have to “demonstrate that the circumstances merit merger or consolidation of schemes and the interest of the unit holders of surviving scheme is not adversely affected”.
After approval by the boards of AMCs and trustees, mutual funds will have to file such a proposal with SEBI. The regulator would then communicate its observations on the proposal. The letter to unit holders would be issued only after the final observations communicated by SEBI have been incorporated and final copies of the same have been filed with SEBI.
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