Tags:
Journalism of Courage
What are you buying if offered a 8216;Relief Bond Fund8217;?
8226; RBI Relief bonds
8226; A mutual fund that buys RBI Relief bonds and your returns 8212; and the safety of your capital 8212; will be as good as those offered by the RBI bonds.
8226; A conservatively-managed bond fund with returns akin to RBI Relief bonds, but with no guarantee on return.
If you ticked the first option, you may not be in a minority. The draft offer document of HDFC MF Relief Bond Fund on the Sebi site raises the issue of mutual fund scheme names that confuse investors. As things stand, the HDFC scheme is still to get the go-ahead from Sebi for this fund.
RBI Relief bonds are no longer in the market today, having been replaced by the RBI Savings Bonds. But among retail investors, the 8216;Relief Bond8217; brand name is associated with assured-return, zero-risk RBI paper.
But is the name really confusing? Says Gaurav Mashruwala, a Mumbai-based financial planner: 8220;Prima facie, the feeling will be that it is something to do with the erstwhile RBI bonds.8221; Adds Himanshu Kohli, Partner at Gurgaon-based Client Associates: 8220;This could be understood by the retail investor as an RBI Relief Bond, though as a planner I would warn my clients about the true nature of the product.8221;
Others in the distribution business feel otherwise. Rajiv Bajaj, managing director of Bajaj Capital, advised us to see the glass as half full, instead of empty. 8220;I like to see the positive side. Since investors do not understand debt funds properly, this looks like an attempt to give structured products that meet specific needs.8221; His point: mutual fund buyers are now all smart enough to understand that it8217;s not an assured-return product.
While the Sebi chairman was unavailable for comment, a Sebi official told this newspaper: 8220;It is still a draft offer. It is not yet cleared.8221; There was no answer to the question whether the name will be changed or not.
HDFC AMC Managing Director Milind Barve said the product is aimed at retail investors, not institutions, and its name will not cause any confusion in their minds: 8220;How can there be any confusion between HDFC and RBI? The two are clearly different entities.8221; See interview The issue of using misleading names for fund schemes is an old one and though Sebi has asked for changes in some names in the past, the rules are not yet clear.
The US regulator, the Securities and Exchange Commission SEC, came out with clear regulation in January 2001. The SEC8217;s aim was to encourage 8216;truth in labelling8217; of mutual funds. In fact, one of the provisions was aimed at preventing funds from misrepresenting government paper. Will Sebi do the same?
