Key Happenings

Product labelling

SEBI has issued a circular dated March 18, 2013 regarding the labelling of mutual fund schemes in the country. This is meant to provide investors with a better understanding of the products that they are investing in and the labelling process will be effective from July 1, 2013. The label would give details of the nature of the scheme — this could be something like ‘create wealth’ or ‘produce regular income’. The labels would have to be shown with an indicative time horizon of whether it is for the short, medium or long term. The nature of the product, as to whether this is debt or equity along with the investment objective, will also be mentioned. The most significant part will be the colour coding for the product where blue will mean low risk, yellow will mean medium risk and brown will mean high risk. The risk mentioned here is with respect to the principal invested in the scheme. The colour codes would also have the risk levels described in text next to the box. The labels would have to be mentioned on the front page of the initial offer application forms, key information memorandum and scheme information documents. This will also be seen in the common application forms and scheme advertisements so that the labels are clearly visible.

What does this mean for you as an investor?  Come July when the product labelling goes into effect, and you will be spared the confusion that arises with respect to the nature and risk associated with a mutual fund scheme. A look at the colour codes will give you a clear indication of the risk element that is present in the scheme. This should be the starting point for you to make further inquiries and gather the required information related to the scheme. The codes will also be prominently visible so they will be simple to spot.

Simple and Performing schemes for New Cadre of Distributors SEBI, vide circular dated September 13, 2012, has allowed new cadre of distributors to sell units of simple and performing mutual fund schemes. As per the SEBI guidelines, simple and performing mutual fund schemes shall comprise of diversified equity schemes, fixed maturity plans (FMPs) and index schemes and should have returns equal to or better than their scheme benchmark returns during each of the last three financial years. SEBI / AMFI have notified that persons such as postal agents, retired government and semi-government officials (class III and above or equivalent) with a service of at least 10 years, retired teachers with a service of at least 10 years, retired bank officers with a service of at least 10 years, Business correspondents appointed by Banks, and intermediaries / agents engaged in distribution of financial products e.g. insurance agent, FD agent, National Savings Scheme products, PPF, etc. registered with any other Financial Services Regulator would qualify under the new cadre of distributor. The new cadre of distributor will need to undergo a simplified process of certification and registration, and will be eligible to sell only simple and performing mutual fund schemes. Basis the period of three financial years ended March 31, 2013, the following schemes of Franklin Templeton Mutual Fund qualify as ‘simple and performing scheme’ and are eligible to be sold by the new cadre of distributors - Franklin India Flexi Cap Fund, Franklin India Index Fund - BSE Sensex Plan, Franklin India Index Fund – NSE Nifty Plan, Franklin India Prima Plus and Franklin India Taxshield.

What does this mean for you as an investor? With a new set of advisors joining the industry will help investors in smaller towns get access to mutual fund advice and benefit from investing in them. The classification of schemes will also ease the selection process for both the investor and the advisor.