As of 1st June 2018, SEBI has de-cluttered mutual funds by laying down clear guidelines on their re-categorization. To know how it impacts you as an investor, here are the details.
SEBI has defined 5 clear groups to classify all the schemes. They are
- Equity Schemes –These will have 10 categories and will invest in equity and equity related instruments.
- Debt Schemes –These will have 16 categories and will invest in debt instruments.
- Hybrid Schemes – These will have 6 categories and will invest in a mix of equity, debt and other assets related instruments.
- Solution Oriented Schemes – Thesewill have schemes like retirement schemes or children savings scheme and there will be a 5 year lock-in period for them.
- Other Schemes –These will have index funds, sectoral funds, fund-of-funds and ETFs
And the best part is that a fund house is allowed to have only 1 type of scheme in each sub-category.
Only exceptions that are allowed are in case of:
- Index Funds – can have as many schemes as there are indices.
- Fund-of-Funds
- Sectoral/Thematic funds– can have as many schemes as there are sectors.
EQUITY SCHEMES SUB CATEGORIES
- Large Caps– to invest at least 80% in large caps
- Large & Mid Caps– at least 35% each in large caps and mid caps
- Mid Caps– at least 65% in mid caps
- Small Caps– at least 65% in small caps
- Multi Caps– at least 65% in equities & no market-cap wise restriction
- Dividend Yield– at least 65% in equities but in dividend yielding stocks
- Value/Contra– at least 65% in equities & a fund house can either offer a value fund or a contra fund but not both
- Focused– at least 65% in equities and can only have a maximum of 30 stocks
- Sectoral/Thematic– at least 80% in chosen sector stocks
- ELSS (Equity Linked Savings Scheme)
Note:
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
DEBT SCHEMES SUB CATEGORIES
- Overnight Funds –holding portfolio with maturity of up to 1 day
- Liquid Funds –holding portfolio with maturity of up to 91 days
- Ultra-Short Duration –holding portfolio with maturity of 3-6 months
- Low Duration –holding portfolio with maturity of 6-12 months
- Money Market –holding portfolio of money market instruments with maturity of up to 1 year
- Short Duration –holding portfolio with maturity of 1-3 years
- Medium Duration –holding portfolio with maturity of 3-4 years
- Medium to Long Duration –holding portfolio with maturity of 4-7 years
- Long Duration –holding portfolio with maturity of more than 7 years
- Dynamic Bond –can invest across durations
- Corporate Bond –at least 80% in corporate bonds (AA+ & above)
- Credit Risk Fund –at least 65% in corporate bonds below AA
- Banking and PSU –at least 80% in instruments issued by banks, PSU undertakings, municipal corporations, etc.
- Gilt –at least 80% in instruments issued by government across periods
- Gilt with 10-year Constant Duration –at least 80% in instruments issued by government across periods such that the average maturity is 10 years
- Floater –at least 65% in floating rate instruments
HYBRID SCHEMES SUB CATEGORIES
- Conservative Hybrid Funds– 10 to 25% equity allocation
- Balanced Hybrid Funds – 40 to 65% equity allocation
- Aggressive Hybrid Funds– 65 to 80% equity allocation
- Dynamic Asset Allocation – can vary without restrictions
- Multi-Asset Funds – invest in at least 3 assets with a minimum of 10% in each
- Arbitrage Funds – arbitrage strategy with a minimum 65% equity allocation
- Equity Savings – a minimum of 65% in equity and 10% in debt
HOW DOES IT BENFIT YOU AS AN INVESTOR
- Choosing between mutual funds is easier than ever as they are clearly categorised.
- You can now choose from a much smaller number of schemes as they are de-cluttered.
- Comparing schemes can be done in a better manner.
- You need not worry about change in the mandate of the fund in the future since the categories and sub-categories are now clearly defined.