25th June 2018
Dear Partner,
Greetings from NJ !!!
This has reference to the SEBI's circular SEBI/HO/IMD/DF3/CIR/P/2017/114 regarding Categorization and Rationalization of Mutual Fund Schemes, many of the AMCs have initiated Scheme mergers as well as changes in scheme attributes.
We would like to share with you impact of Scheme Merger on existing transactions and future transactions. Further we would also like to share our future action points.
Impacts of Scheme Merger:
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Scheme merger transactions are processed as Switch transactions by RTAs and accordingly Switch out will be processed from Old scheme (schemes that will be discontinued post merger) and Switch In will be processed in Target Scheme i.e. New Scheme.
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As the Transactions are processed as Switch, related impacts shall be observed in various reports as mentioned below:
| Desk | Report | Post Merger Impact on old/discontinued scheme trxns |
| Partner & Client desk | Transaction Report | Switch out transaction from old scheme & switch in transaction to new/target scheme |
| Switch out transaction will be processed as per NAV of old scheme as on date of merger & Switch in trxn with NAV of target scheme just like a regular switch transaction. | ||
| Client Desk | Valuation Report | From the date of Merger, new/target scheme will be displayed in valuation report. As there is switch out processed in Old scheme, the same will not be displayed in valuation report later on. |
| As the Switch transactions are processed with the NAV as on date of Merger, valuation report will show investment value of new scheme, which will be equal to current value of switch out scheme as on date of merger. For Eg. If original investment amount in Old Scheme was Rs. 10000/- and current value as on date of merger is Rs. 15000/- than Switch transaction will get processed with Rs. 15000/- and accordingly valuation will display Switch In scheme with investment value as Rs. 15000/-. | ||
| Profit & Loss Report | Since effect of merging is given by way of switch transaction, P&L will have impact on ST/LT Gain/Loss values similar to a regular switch transaction. | |
| Though Gain/Loss arising out of scheme mergers/consolidations are not considered as per Section 47 (xviii) of Income Tax Act, this report will display it as Gain/Loss which has to be noted and manually treated while using the report for Income Tax purpose. | ||
| Partner Desk | Business Snapshot & AUM | Value of Gross Sales & Gross Redemption will increase |
| No impact on Net Sales or AUM since amount of switch out & in remains same. | ||
| In case if scheme category of target/new scheme is different than old/discontinued schemes, there may be a deviation in scheme category wise AUM & Net Sales figures. |
Keeping in view the usage for Income Tax purpose regarding scheme merger, we would be making below changes in Profit & Loss report:
- A separate P&L report will be provided which displays Gain/Loss excluding merger effect.
- Identification in Consolidated P&L report for such transactions so that those entries can be excluded while using the same for income tax purpose.
We shall keep you posted as and when the changes in our system shall take place.
Please feel free to contact our customer care for any assistance in this regard.
Regards,
NJ India Invest Pvt. Ltd.
