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Saturday 7 October 2017

SEBI notification : Categorization and Rationalization of Mutual Fund Schemes

As per SEBI notification a mutual fund company can have only one fund in each of categories like Equity, balanced, hybrid, debt and Solution oriented schemes etc. Mutual fund need to wind up the schemes or merge.

Currently there are 42 Mutual Fund houses and about 2000 Mutual Fund schemes and each have several variants (Regular, Direct, Growth, Dividend Payout, Dividend Reinvest etc). The SEBI circular aims to reduce the number of primary schemes and that too only open-ended Mutual Fund schemes which are about 830 in number.

SEBI has defined the following groups and categories of MF schemes:
  1. Equity Schemes - 10 categories
  2. Debt Schemes - 16 categories
  3. Hybrid Schemes - 6 categories
  4. Solution oriented schemes - 2 categories
    • Retirement planning
    • Children’s future
  5. Other schemes
    • Category for each index funds/exchange-traded funds (ETF)
    • Fund of funds (FOF)

The above circular SEBI also lays the definition of large cap, mid-cap and small-cap companies.

  1. Large Cap: 1st-100th company in terms of full market capitalization.
  2. Mid Cap: 101st-250th company in terms of full market capitalization.
  3. Small Cap: 251st company onwards in terms of full market capitalization.

All existing open ended schemes of all Mutual Funds need to follow the rules. Mutual Fund companies have been given 2 months to review all their Mutual Funds and come with a plan to align their various schemes according to the said categorisation. Mutual fund companies need to wind up their open ended schemes or merge them. It will also help us to align our goals with a MF scheme. As an investor we also have reduced list of funds to choose for investment.

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