Should mutual fund investors worry about high inter scheme transfers?

Inter scheme transfers in the mutual fund industry have inched up in December and January. According to data available with Sebi, such transfers stood at Rs 25,242 crore in December, the highest in the last seven months. The figure was Rs 16,458 crore in January, the second highest in the last six months. (See chart 1)

Inter scheme transfers is the process of a mutual fund scheme selling securities to another scheme within the fund house. It is an alternative to otherwise selling the assets outside.

The inter scheme transfers have been growing since 2012-13 on year-on-year basis. The transfers for the current financial year stood at Rs 1,96,708 crore (April 01 2018 to February 15, 2019), higher by 18 per cent over the last financial year. It is important to note here that the figures for FY 2018-19 will be higher as we still have one more month before the year ends. (See chart 2 for details)

Inter scheme transfers are a legitimate way to transfer assets of one scheme to another. If so, why should it concern mutual fund investors? Well, some mutual fund industry experts believe fund houses may be transferring their bad assets or non- performing assets to closed-ended schemes via inter scheme transfers.

“This way, AMCs can transfer their bad assets to FMPs as well. And, if this is the case, the FMP investors will have to bear the brunt,” says a mutual fund advisor on account of anonymity.

Mutual fund analysts say though there could be some genuine transfers between schemes to infuse liquidity, higher inter schemes transfers in the backdrop of NBFC crisis raises many questions. The current crisis started around August last year when the IL&FS episode broke out followed by DHFL and Zee group’s inability to meet their obligations.

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An industry participant anonymously told that when mutual funds used to offer two plans- institutional and retail – they would often transfer bad assets from their institutional plans to retail plans to save their institutional investors.

The data released by Sebi gives out only the total number of inter scheme trades and the total amount traded every day. It does not show the details of the transactions. Only a detailed data will tell us the real issue behind the inflated inter scheme juggling.

Several mutual fund managers and analysts declined to comment on the data.



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