Why the recategorisation?SEBI recently came up with its initiative of rationalisation and categorisation of mutual funds to bring forth uniformity in the way asset management companies (AMCs) function and standardise character of fund schemes across categories.
Under the new scheme, each product offering needs to be distinct from the other, in terms of both asset allocation proportions and investment objective. This now makes it simple for investors to distinguish each scheme carefully before finalising one.
How are funds recategorised?According to the latest guidelines, 36 mutual fund schemes have been singled out, with AMCs having been barred from offering two schemes – with similar mandates – under different names. The following amendments to mutual fund schemes with regards to categorisation have been brought forth:
ClassificationPost recategorisation, funds have been classified into equity-oriented funds, debt-oriented funds, hybrid funds, solution-oriented and others.
NamingThe recategorisation has called for a renaming of the fund schemes in order to present the real risk element to the investor. While previously, funds would have fancy names – ‘prudence’, ‘advantage’ – to them, now they should ideally drop them in keeping the latest regulation.
Lock-in periodThe latest regulation has also called for a lock-in period for the new solution-oriented funds such as children’s fund or retirement fund, for that matter. However, this rule will not apply to existing investors. Additionally, already existing Systematic Transfer Plans (STPs) and Systematic Investment Plans (SIPs) will not be subject to the newly introduced ‘lock-in period’.
Amendments to the scheme attributesBesides classification and naming, the investment mandate, strategy of each scheme and its respective benchmark index are to be modified as well.
What are the new categories?The new fund categories and their sub-categories have been stated below:
Equity fundsEquity funds have been further classified into the following categories:
- Large-cap fund
- Large and mid-cap fund
- Mid-cap fund
- Small-cap fund
- Multi-cap fund
- Value fund
- Dividend yield fund
- Contra fund
- Thematic/sectoral fund
- Equity-linked savings scheme (ELSS)
- Focused fund
Debt fundsFurther classification of debt funds is as follows:
- Liquid fund
- Overnight fund
- Money-market fund
- Low duration fund
- Ultra-short duration fund
- Short duration fund
- Long duration fund
- Medium duration fund
- Medium to long duration fund
- Corporate bond fund
- Dynamic bond fund
- Banking and PSU fund
- Credit risk fund
- Gilt fund
- Gilt fund with 10-year duration
- Floater fund
Hybrid fundsThe sub-categories of hybrid fund have been stated below:
- Conservative hybrid fund
- Aggressive hybrid fund
- Balanced hybrid fund
- Multi-asset allocation fund
- Balanced advantage fund
- Equity savings fund
- Arbitrage fund
Solution-oriented fundThese have been further categorized into children’s fund and retirement fund – both attaching a lock-in period of minimum 5 years.
Other fundsSuch funds have been further classified into index funds and Fund of funds (FoF).
The rejig exercise is aimed to bring more transparency into mutual fund investment and help investors identify the true objective of the fund and ensure it matches with their financial goals.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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