The discussions are centred around easing the National Institute of Securities Markets’ NISM XIII (derivatives) exam, which is mandatory for obtaining a license to distribute SIFs. Some of the options considered so far are to remove a portion of currency derivatives from the exam or to introduce levels within the exam structure, to ensure that mutual fund (MF) distributors are tested on topics relevant to the SIFs they sell.
The exam consists of three sections: currency derivatives, equity derivatives, and interest rate derivatives. Distributors stated that currency derivatives are not relevant to SIFs at present, as Sebi does not permit AMCs (asset management companies) to launch SIF products related to this segment.
The market regulator has allowed AMCs to launch SIFs in seven strategies, none of which use currency derivatives. The strategies are Equity Long Short Fund, Equity Ex-Top 100 Long-Short Fund, Sector Rotation Long-Short Fund, Debt Long-Short Fund, Sectoral Debt Long-Short Fund, Active Asset Allocator Long-Short Fund, and Hybrid Long-Short Fund.
“There is no use case for currency derivatives. AMCs have built only equity derivatives products for now,” said Kartik Sankaran, a Mumbai-based mutual fund distributor.
The options considered so far are expected to ensure that MFDs do not face additional hurdles in passing the exam due to topics they do not deal with in day-to-day business.
“Anyone marketing this product needs to explain the risk. Amfi is not comfortable with diluting the exam but has suggested diluting currency derivatives,” said one of the people aware of the discussions.
No other section of the exam is expected to be removed.
Low distributor base
“Sebi may introduce levels to make the exam more relevant. MFDs can choose the level they think is relevant to the product they sell,” said another person quoted above.
Queries mailed to Sebi and Amfi did not elicit a response.
The exam is widely seen as significantly more challenging than the NISM VA certification required for mutual fund distributors.
“Compared to the MFD exam, the SIF exam has more math and is based on derivatives, along with negative marking. This makes the exam difficult to pass. The exam also includes topics that we don’t see in everyday life,” said Sankaran.
The difficulty of the exam has affected the number of distributors who pass it. As of 19 September, data from CAMS shows that over 1,000 distributors have cleared the NISM XIII derivatives exam and applied for SIF registration. The number of MFDs, on the other hand, is much higher at 180,000.
In February, Sebi launched SIF, a product to bridge the gap between retail-focused mutual funds and portfolio management services (PMS) that target the rich. The minimum ticket size for an SIF is ₹10 lakh, while that for a PMS is ₹50 lakh. SIF is designed for investors who are willing to take higher risks than those associated with a mutual fund.
Fund houses responded with enthusiasm on paper, with several large asset managers announcing SIF plans over the past few months. Actual launches, however, have been limited.
SIF launch status
As of October, four SIF products have been successfully launched under the new framework. These include Quant Mutual Fund’s QSIF Equity Long-Short Fund, Edelweiss Mutual Fund’s Altiva Hybrid Long-Short Fund, SBI Mutual Fund’s Magnum Hybrid Long-Short Fund, and ITI Mutual Fund’s Divinity SIF. Beyond these launches, around 13 fund houses have obtained SIF brand approvals, but there has been no visible progress on their launches.
“Markets need to show maturity for an evolved product like SIF. Currently, the focus for investors seems to be on near-term return. We are in the process of strengthening our backend infrastructure needed to launch an SIF,” said Swarup Mohanty, vice chairman and chief executive officer at Mirae Asset Management, which received approval for their SIF product in June.
“The SIF needs more sellers. It’ll take time for distributors to grow,” he added. The first four schemes were launched in October and garnered inflows worth ₹2,004.56 crore.
“Distributors are not used to such exams. I won’t be surprised if people fail in the first attempt,” said Santosh Joseph, managing director and chief executive officer of Germinate Investor Services, an investment advisory firm.
“SIF sales may not shoot up if more distributors enter the space, as SIF is yet to be a proven supplier product. AMCs are still testing the waters. The segment may take a year or two to pick up substantially,” Joseph said.
When he gave the exam three months ago, he was the only examinee at the centre.
