Topic 4: New Mutual Fund Schemes Categorization – What Investors should know?
Mutual Fund Schemes Categorization – What Investors should know?
Last year, SEBI has issued new reforms on the categorization of Mutual Fund Schemes and restricted such categorization to only 5. These SEBI reforms would be shaking up Mutual Fund Industry who are floating various mutual fund schemes in the same category with small changes. Currently, the mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes are running and out of which 317 are open-ended schemes which would impact. What are these new reforms/guidelines from SEBI about mutual fund schemes? What happens to existing Mutual Fund Schemes in the same category. What should investors know about New Mutual Fund Schemes Categorization? What are the 5 Baskets where SEBI is asking AMCs to classify the mutual fund schemes?
What are SEBI New Reforms on Mutual Fund Schemes?
1) SEBI issued new norms/guidelines on mutual fund schemes and all such schemes should be categorized into 5 baskets only.
2) 5 Baskets are Equity, Debt, hybrid, solution-oriented and other mutual fund schemes.
3) Mutual Fund Houses cannot launch similar schemes in the same theme. Means, there would not be any duplicate plans which AMC can launch or run.
4) Sebi has said the one-scheme-per-category rule will not be applicable to exchange-traded funds (ETFs) tracking different indices; fund-of-funds having different underlying schemes; sectoral and thematic funds investing in different sectors.
5) Mutual Fund Houses (AMC) have to submit the proposal of their existing schemes along with categorization of the schemes within next 2 months and should implement new reforms in the next 3 months without fail.
6) SEBI provided guidelines about the classification of large-cap, mid-cap and small schemes. First 100 companies in market capitalization are termed as large-cap, First 101 to 250 companies are termed as mid-cap companies and after 250+ market capitalization are termed as smallcap companies. Association of Mutual Funds of India (AMFI) would update this data twice on their website which would be a basis where mutual fund schemes can invest based on their investment objectives. This would apply to all existing open-ended mutual fund schemes which got SEBI clearance, however yet to be launched and for all schemes where draft documents submitted which are pending with SEBI for approval.
Why SEBI feels new reforms required for mutual fund categorization?
SEBI feels that there are different schemes being launched by the same MF house with small variations. Such categorization would clearly distinct in asset allocation and investment strategy. This would also bring uniformity among mutual fund schemes being launched by different mutual fund AMCs.
What are the 5 Baskets where Mutual Fund Scheme are Categorized now?
As per SEBI new reforms, mutual fund schemes have to be classified into 5 baskets. However, SEBI was liberal in providing further sub-classification in equity, debt and hybrid segment. Currently, mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes and out of which 317 are open-ended schemes which would impact. Here is how the new basket of mutual fund schemes looks like:
Basket#1 – Equity Mutual Fund Schemes
This equity mutual fund schemes would comprise of the following schemes.
1) Multi-cap Fund
2) Large-cap Fund
3) Large and mid-cap fund
4) Mid-cap fund
5) Small-cap fund
6) Dividend Yield Fund
7) Value Fund & Contra Fund
8) Focused Fund
9) Sectoral/Thematic Fund
10) Equity Linked Mutual Fund Schemes
Basket#2 – Debt Mutual Fund Schemes
This debt mutual fund schemes would comprise of the following schemes.
1) Overnight Fund – Investment in overnight securities having maturity of 1 day.
2) Liquid Mutual Funds
3) Ultra Short Term Funds
4) Low Duration Funds
5) Money Market Funds
6) Short Duration Funds
7) Medium Duration Funds
8) Medium to long duration funds
9) Long Duration Fund
10) Dynamic Fund
11) Corporate Bond Fund
12) Credit Risk Fund
13) Banking and PSU Fund
14) Gilt Fund
15) Gilt Fund with 10 year constant duration
16) Floater Fund
Basket#3 – Hybrid Schemes
This hybrid mutual fund schemes would comprise of the following schemes.
1) Conservative Hybrid Funds
2) Balanced Hybrid Fund & Aggressive Hybrid Funds
3) Dynamic Asset Allocation or Balanced Advantage Funds
4) Multi Asset Allocation Fund
5) Arbitrage Fund
6) Equity Savings
Basket#4 – Solution Oriented Schemes
This solution-oriented mutual fund schemes would comprise of the following schemes.
1) Retirement Fund – Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier.
2) Children’s Fund – Scheme having a lock-in for at least 5 years or until the child attains the age of majority whichever is earlier.
Basket#5 – Other Schemes
Other mutual fund schemes would comprise of the following schemes.
1) Index Funds / ETFs
2) Funds of Funds (Overseas / Domestic)
What does Mutual Fund AMC’s need to do now?
As per SEBI new guidelines about the categorization of mutual fund schemes, AMCs need to come back to SEBI with the proposal about merger or wind-up (if the merger is not possible) of schemes into these 5 baskets. Mutual Fund AMC is now allowed only one scheme in the provided basket and sub-basket classification. They need to classify all their equity mutual fund Schemes into sub-basket of 10 schemes. They need to reclassify all their debt funds into 16 categories. For hybrid funds, they need to classify them into 6 and solution-oriented into 2 sub-classifications.
How does this impact Mutual Fund Investors?
You might be investing in several mutual fund schemes. However, once the rationalization/merging of mutual fund schemes happens, this would have some impact on your portfolio. If you are investing in 10 schemes, they might become 8. If you are investing in specific AMC schemes, in specific market capitalization, your scheme count can come down drastically. E.g. HDFC Top 200 and HDFC Equity Fund as an example would get reviewed and they can get merged. The second example could be Birla SL Frontline Equity, Birla SL Top 100 Fund and Birla SL Equity Fund may get reviewed and may get merged into 1-2 funds. These are just examples to make you understand and this does not mean they would really get merged. Investors need to wait and watch about the proposal of Mutual Fund AMCs to SEBI and once implemented, based on it you can review your mutual fund portfolio. However one needs to keep an eye about the developments.
Source: https://myinvestmentideas.com/
Last year, SEBI has issued new reforms on the categorization of Mutual Fund Schemes and restricted such categorization to only 5. These SEBI reforms would be shaking up Mutual Fund Industry who are floating various mutual fund schemes in the same category with small changes. Currently, the mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes are running and out of which 317 are open-ended schemes which would impact. What are these new reforms/guidelines from SEBI about mutual fund schemes? What happens to existing Mutual Fund Schemes in the same category. What should investors know about New Mutual Fund Schemes Categorization? What are the 5 Baskets where SEBI is asking AMCs to classify the mutual fund schemes?
What are SEBI New Reforms on Mutual Fund Schemes?
1) SEBI issued new norms/guidelines on mutual fund schemes and all such schemes should be categorized into 5 baskets only.
2) 5 Baskets are Equity, Debt, hybrid, solution-oriented and other mutual fund schemes.
3) Mutual Fund Houses cannot launch similar schemes in the same theme. Means, there would not be any duplicate plans which AMC can launch or run.
4) Sebi has said the one-scheme-per-category rule will not be applicable to exchange-traded funds (ETFs) tracking different indices; fund-of-funds having different underlying schemes; sectoral and thematic funds investing in different sectors.
5) Mutual Fund Houses (AMC) have to submit the proposal of their existing schemes along with categorization of the schemes within next 2 months and should implement new reforms in the next 3 months without fail.
6) SEBI provided guidelines about the classification of large-cap, mid-cap and small schemes. First 100 companies in market capitalization are termed as large-cap, First 101 to 250 companies are termed as mid-cap companies and after 250+ market capitalization are termed as smallcap companies. Association of Mutual Funds of India (AMFI) would update this data twice on their website which would be a basis where mutual fund schemes can invest based on their investment objectives. This would apply to all existing open-ended mutual fund schemes which got SEBI clearance, however yet to be launched and for all schemes where draft documents submitted which are pending with SEBI for approval.
Why SEBI feels new reforms required for mutual fund categorization?
SEBI feels that there are different schemes being launched by the same MF house with small variations. Such categorization would clearly distinct in asset allocation and investment strategy. This would also bring uniformity among mutual fund schemes being launched by different mutual fund AMCs.
What are the 5 Baskets where Mutual Fund Scheme are Categorized now?
As per SEBI new reforms, mutual fund schemes have to be classified into 5 baskets. However, SEBI was liberal in providing further sub-classification in equity, debt and hybrid segment. Currently, mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes and out of which 317 are open-ended schemes which would impact. Here is how the new basket of mutual fund schemes looks like:
Basket#1 – Equity Mutual Fund Schemes
This equity mutual fund schemes would comprise of the following schemes.
1) Multi-cap Fund
2) Large-cap Fund
3) Large and mid-cap fund
4) Mid-cap fund
5) Small-cap fund
6) Dividend Yield Fund
7) Value Fund & Contra Fund
8) Focused Fund
9) Sectoral/Thematic Fund
10) Equity Linked Mutual Fund Schemes
Basket#2 – Debt Mutual Fund Schemes
This debt mutual fund schemes would comprise of the following schemes.
1) Overnight Fund – Investment in overnight securities having maturity of 1 day.
2) Liquid Mutual Funds
3) Ultra Short Term Funds
4) Low Duration Funds
5) Money Market Funds
6) Short Duration Funds
7) Medium Duration Funds
8) Medium to long duration funds
9) Long Duration Fund
10) Dynamic Fund
11) Corporate Bond Fund
12) Credit Risk Fund
13) Banking and PSU Fund
14) Gilt Fund
15) Gilt Fund with 10 year constant duration
16) Floater Fund
Basket#3 – Hybrid Schemes
This hybrid mutual fund schemes would comprise of the following schemes.
1) Conservative Hybrid Funds
2) Balanced Hybrid Fund & Aggressive Hybrid Funds
3) Dynamic Asset Allocation or Balanced Advantage Funds
4) Multi Asset Allocation Fund
5) Arbitrage Fund
6) Equity Savings
Basket#4 – Solution Oriented Schemes
This solution-oriented mutual fund schemes would comprise of the following schemes.
1) Retirement Fund – Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier.
2) Children’s Fund – Scheme having a lock-in for at least 5 years or until the child attains the age of majority whichever is earlier.
Basket#5 – Other Schemes
Other mutual fund schemes would comprise of the following schemes.
1) Index Funds / ETFs
2) Funds of Funds (Overseas / Domestic)
What does Mutual Fund AMC’s need to do now?
As per SEBI new guidelines about the categorization of mutual fund schemes, AMCs need to come back to SEBI with the proposal about merger or wind-up (if the merger is not possible) of schemes into these 5 baskets. Mutual Fund AMC is now allowed only one scheme in the provided basket and sub-basket classification. They need to classify all their equity mutual fund Schemes into sub-basket of 10 schemes. They need to reclassify all their debt funds into 16 categories. For hybrid funds, they need to classify them into 6 and solution-oriented into 2 sub-classifications.
How does this impact Mutual Fund Investors?
You might be investing in several mutual fund schemes. However, once the rationalization/merging of mutual fund schemes happens, this would have some impact on your portfolio. If you are investing in 10 schemes, they might become 8. If you are investing in specific AMC schemes, in specific market capitalization, your scheme count can come down drastically. E.g. HDFC Top 200 and HDFC Equity Fund as an example would get reviewed and they can get merged. The second example could be Birla SL Frontline Equity, Birla SL Top 100 Fund and Birla SL Equity Fund may get reviewed and may get merged into 1-2 funds. These are just examples to make you understand and this does not mean they would really get merged. Investors need to wait and watch about the proposal of Mutual Fund AMCs to SEBI and once implemented, based on it you can review your mutual fund portfolio. However one needs to keep an eye about the developments.
Source: https://myinvestmentideas.com/