The Securities and Exchange Board of India (SEBI) has directed mutual funds to categorise all their schemes into five broad groups namely: equity, debt, hybrid, solution oriented and other.
Further, within the broad groups, the regulator has allowed fund houses to have schemes based on parameters such as market capitalisation, investment strategy, tenure of instruments (for debt schemes) and the share of equity and debt.
“It is desirable that different schemes launched by a mutual fund are clearly distinct in terms of asset allocation, investment strategy, etc. Further, there is a need to bring in uniformity in the characteristics of similar type of schemes launched by different mutual funds,” said the SEBI circular, adding that it would ensure that mutual fund investors will be able to evaluate the different options available before taking an informed decision.
Similarly, debt schemes will have cub-categories like overnight fund, liquid fund and low-duration fund., dynamic bond fund and gilt fund among others. Solution-oriented funds have been further classified into retirement fund and children's fund. Both the sub-categories will have a lock-in of at least five years.
While there is a total of 36 sub-categories, fund houses have been allowed to have only one scheme per sub-category. The move will lead to a significant fall in the number of schemes that are currently pegged over 2,000. The SEBI directive will force fund houses to merge similar schemes.
Aashish Somaiyaa, MD and CEO, Motilal Oswal Asset Management Company, said that the regulatory direction will help investors make optimal choices as the industry needs to offer fewer but well-defined choices rather than a plethora of clones.
