One reason that makes many investors choose mutual fund investments is their ease of investing. You don’t need to pick individual stocks, you don’t need to constantly monitor them and above all, there is a qualified fund manager to take care of your investments. All you need to do is find a fund that matches your investment goals and risk appetite and they mostly work their wonder on their own.
Mutual funds are also known for their flexibility. That means, their portfolio could have anything. This has led to many mutual funds investing, creating their own ratio and it could get a little cluttered, especially when mutual funds can even invest in other mutual funds.
The Securities and Exchange Board of India, the watchdog of market investments in India, saw this clutter and recently introduced a guideline on the categorisation and rationalisation of mutual fund schemes. This is to make investing in mutual funds in India even simpler for investors by making them easier to identify. Let’s explore what the changes are and how they will impact investors.
How are mutual funds recategorised?
SEBI has put forward the following changes in the categorisation of mutual funds –
Classification of schemes
Prior to the change, the lines were thin between the categorisation based on what the fund focused on. This becomes especially true when it comes to categorisation based on the market cap of the companies they invest in. To make this easier for investors, SEBI has put forward the following categorization –
All mutual funds are broadly categorised into five and come under one among the following umbrella –
- Equity schemes
- Debt schemes
- Hybrid schemes
- Solution-oriented schemes
- Other schemes
Equity funds are further divided into these –
- Large cap funds
- Large & mid-cap funds
- Mid-caps funds
- Small caps funds
- Multi caps funds
- Dividend yield funds
- Value funds
- Contra funds
- Focused funds
- Sector and thematic funds
- ELSS funds
Debts funds are further categorised into –
- Banking and PSU funds
- Gilt funds
- Gilt funds; 10-year constant duration
- Floater funds
- Corporate bond funds
- Credit risk funds
- Long duration funds
- Dynamic bond funds
- Short duration funds
- Medium duration funds
- Medium to long-duration funds
- Overnight funds
- Liquid funds
- Ultra-short duration funds
- Low duration funds
- Money market funds
Hybrid funds sub-categories
- Conservative hybrid funds
- Balanced hybrid funds
- Aggressive hybrid funds
- Dynamic asset allocation funds
- Multi-asset funds
Solution-oriented schemes sub-categories
- Retirement plans
- Children future planning
Other schemes sub-categorisation
- Index funds
- Fund of Funds
Change in the naming of mutual fund schemes
Mutual fund houses will now have to clearly name their funds showing the kind of risk involved while investing in them. This means fund houses have to drop descriptions like ‘advantage’, ‘opportunities’ etc. from the schemes name and make it clearer.
What is the impact on investors?
This change is expected to make investing in mutual funds much easier for investors. As said above, the whole mutual fund scenario was getting a bit cluttered, and this move will make distinguishing these funds much easier. Categorisation also is made easy by this move. Furthermore, investors can easily know the risk involved with each fund now.
Mutual funds schemes are already making investing simple, and this move has further simplified it. If you have not yet invested, the right time is now. Go to a fund house or broker website and invest in mf online today!