Sebi relaxes merger norms for MF schemes

Market regulator Sebi on Saturday relaxed norms for merger of mutual fund schemes, allowing fund houses to give exit option to unit holders of surviving scheme, a move which will boost consolidation among various MF products.

"In order to facilitate merger of schemes, it has been decided that merger or consolidation shall not be seen as change in fundamental attribute of the surviving scheme...," SEBI said in a circular.

The circular explained that at the time of the merger of schemes, the fund houses need give the unit holders of surviving schemes an exit option if MFs can show that there was no change in the fundamental attribute of the scheme.

Also the MFs have to demonstrate that the circumstances merit the merger of the scheme and the interest of the unit holders are not adversely affected.

Supposing, a fund house is merging scheme 'B' with scheme 'A', then as per the existing norms MFs have to give exit option to the unit holders of both the schemes at the current net asset value (NAV).

As per the revised norms, the unit holders of scheme 'A', or the surviving scheme, need not be given exit option if the afforesaid conditions could be proved by the MFs.

"This will ensure smooth consolidation between schemes.

It was a tedious process to give exit option to all unit holders as the surviving scheme usually had a bigger NAV," SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.