The launch of 183 mutual fund schemes has been delayed due to adverse market conditions, pending responses to queries from the Securities and Exchange Board of India (Sebi) and a change in guidelines.

Out of these, 68 schemes were fixed maturity plans (FMPs) that had to be shelved because of a change in guidelines in the third quarter of 2008-09. Of the remaining 115, Sebi is yet to approve around 70-75 schemes, despite their offer documents being filed since April 2008, according to an industry source.

"A large number of these applications came in the July-October 2008 period. And when we sent them back with queries, the fund houses did not respond," a Sebi official said.

During October, the Bombay Stock Exchange Sensitive Index, or Sensex, fell to a low of 7,700. Since then, there has been some recovery. But markets continue to languish. It's no wonder that fund houses have deferred launches, despite approvals being given to around 40-45 schemes.

"Fund houses were not too keen on launching new schemes in such a market. In equities, especially, there was absolutely no interest," AP Kurian, chairman, Association of Mutual Funds in India (Amfi), said.

However, some fund houses claimed that the market regulator had not approved their schemes within the stipulated period of 21 days from the date of filing the offer document. Some of these offer documents were filed up to 11 months back.

"We have filed offer documents for eight schemes since April and have not received approval from Sebi so far, despite responding regularly to queries," the chief investment officer of an international fund house said.

Since April 2008, about 290 offer documents were filed with Sebi, according to Delhi-based mutual fund tracker Value Research. A fund house pays a fee of Rs 1 lakh for filing an offer document. However, if the fund house does not launch the fund within a six-month period of getting the approval, the application lapses. The fund house is then required to file a fresh offer document.

"Even the more recent new fund offerings have managed to garner only minimal amounts due to low investor appetite. But debt funds are getting inflows into their fixed income and liquid schemes," added Kurian.

Sebi not comfortable with structured products

Sebi has expressed its discomfiture with schemes that are based on equity-linked debentures (ELD) and constant proportion portfolio insurance (CPPI).

"These products were too complex for the lay investor. With the continued downturn in the equity markets, and ratings of ELD issuers too moving into negative zone, the products carry a risk of default. We would not favour the launch of such schemes at the moment," a Sebi official said.

This sentiment was confirmed by Amfi chairman A P Kurian, "Sebi consciously does not approve a fund if it is too complicated for Indian investors."

Currently, there are three ELD-based schemes that have collected Rs 1,516 crore (Rs 15.16 billion). Four ELD based schemes -- UTI Equity Linked FMP Series I, Tata Equity Linked FMP, Birla Equity Linked FMP Series 1M and HSBC Equity Linked FTP -- have not yet received Sebi's approval.

ELDs are floating rate debt instruments whose coupon (interest) is based on the return of the underlying equity index, like the Nifty. However, if the issuer of ELD defaults, the investor bears the risk of losing a part of the principal.

There are no CPPI-based products for retail investors. Fund managers, however, feel that the market regulator should allow them to launch complex products targeted towards high net worth individuals.