The Securities and Exchange Board of India (SEBI) announced a bold move in October 2017. In a circular, it did Mutual Fund Categorization and Rationalization into five broad categories (equity, debt, hybrid, solution-oriented and others) and a few sub-categories under them (such as large-cap, mid-cap, small-cap under equity). Mutual fund houses would then only be able to have one scheme in each sub-category, with some exceptions.
# The Schemes would be broadly classified into the following groups:
a. Equity Schemes
b. Debt Schemes
c. Hybrid Schemes
d. Solution Oriented Schemes
e. Other Scheme
# Only one scheme per category would be permitted, except ;
a. Index Funds/ ETFs replicating/ tracking different indices
b. Fund of Funds having different underlying schemes and
c. Sectoral/ thematic funds investing in different sectors/ themes
# In case of Solution oriented schemes, there will be a specified period of lock-in. However, the said lock-in period would not be applicable to any existing investment by an investor, registered SIPs and incoming STPs in the existing solution oriented schemes.
# Mutual Funds will be permitted to offer either Value fund or Contra fund.
# Definition of Large cap, Mid-cap & Small-cap Funds
Large Cap: 1st – 100th company in terms of full market capitalization.
Mid Cap: 101st – 250th company in terms of full market capitalization.
Small Cap: 251st company onwards in terms of full market capitalization.
The complete SEBI Mutual Fund Categorization and Rationalization can be viewed at SEBI Notification.
The reason for the move is that most investors are extremely confused by the sheer number of schemes on offer. Some fund houses have over a 100 schemes across categories. The move will immediately make matters easier for investors.
While some fund houses are not happy, SEBI is insisting that they submit proposals to align with the new rule by the end of the year.
Will the change really bring that much improvement to the mutual fund investment experience? Let’s examine the impact it is likely to have.
Impact of SEBI Mutual Fund Categorization and Rationalization
# Easier to choose
# One definition
# Sticking to the objective
# Debt funds clearer
# Portfolio review
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