Regarding
Mutual Fund (MF) Re-classification:
Mutual Funds are being
reclassified as per the direction of the SEBI circular dated 6 October, 2017
for the following reasons:
Lack of proper definition
of large cap/mid cap/small cap;
Too many similar schemes
even within a fund house;
Balanced funds are not
balanced; and
Ambiguity about capital
protection schemes.
The
re-classification features are:
·
Merging schemes to comply with new
regulations changing the attributes of existing schemes if necessary;
eliminating overlapping products; to ensure that investors have better
comparison and choice to ease decision-making.
·
SEBI has specified broadly 5 categories:
equity funds, debt funds, hybrid funds {conservative (25:75), balance (40:60 or
50:50) and aggressive (equity 65% to 80%), solution oriented funds (for
retirement, child education etc.) and other funds. The mutual fund houses have
to reclassify with this categories to reduce confusions to the inventors.
·
The new rule requires “investment
objective”, “investment strategy” and benchmark index for each scheme.
· Large caps funds can buy stocks of firms of
top 100 stocks in the market capitalization. Mid cap funds can buy stocks from
firms that are between 101 to 250th in the market capitalization. Small
cap funds can buy stock that fall from 251st onward
.
·
Equity/Debt ratio is specified as 50:50 for
balanced funds to get approvals hereinafter.
·
Benchmark index to be modified to fit new
categories.
· Removing ambiguity in capital protection
schemes. (fixed income and capital appreciations)
·
To specify lock in period for solutions
oriented schemes.
Impact
on the investors in Mutual fund:
As an investor in Mutual
Fund kindly beware that merger schemes may involve some cost, check and decide
whether to stay or exit from the existing scheme.
Check whether the new
reclassification is aligned to your investment goals and Risk-Return
expectations.
Analyst’s remarks that
short term inconvenience may be experienced but in the long run this reclassification is expected to be beneficial to the investors………
.................@ps June 2018
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