GUWAHATI: SEBI recently decided to rationalize the existing categorization of mutual fund schemes and the investors must have been getting several e-mails from the fund houses regarding the change in fundamental attributes of the schemes they have invested in.
With such sweeping changes, most of the mutual fund schemes have a clean slate to start with in respect of the performance as the past performance does not make any difference now. However, at the same time, the decision taken by SEBI has definitely been a landmark decision for the mutual fund sector, moving towards ease and simplification for the investor. This assumes further importance as the retail investors now prefer to park their savings into financial savings like MFs in the post-demonetization era.
Here is how this reclassification of MF schemes benefits the investors:
1. Decision Making Made Easier – The reclassification is aimed to rationalize the scheme categorization so that difference schemes launched by a mutual fund house are clearly distinct in terms of asset allocation, investment strategy etc. This would ensure that an investor is able to evaluate the different options available, before taking an informed decision to invest in a scheme.
2. Uniformity in the Stocks Universe for a Particular Category –The SEBI Circular has also gone a step ahead to define the large cap, mid cap and small cap category of stocks so that there is a uniformity in the investment universe for a particular category. As such, picking the winners will be much important for the fund manager to achieve outperformance the benchmark index instead of selecting different stocks of companies with varying sizes.
3. Simplification of the Choices Available before the Investor – SEBI has further mandated that only MF scheme per category will be allowed for each fund house except for index funds/ ETFs/ Fund of Funds or sectoral/thematic funds investing in different sectors/ themes. As such, the investors are now with lesser choices and can be more specific into the choices to be made, given the simplification of the cluttered universe of the different Mutual Fund schemes available earlier. This mandate has been made applicable to both existing as well as new schemes.
Further, in case you have also received a communication from your fund house regarding the change in the fundamental attributes of the scheme pursuant to such reclassification or otherwise, you may like to ensure that the new investment objective of your scheme meets your investment requirements. For example, you may have invested in a multi-cap fund which will now be run as a small-cap fund. You may not be comfortable staying invested in such fund as small-cap stocks are more susceptible to portfolio volatility. So, In case the new scheme does not match your requirements, you can avail of the exit window made available to all the investors of that mutual fund scheme, wherein you can redeem your existing investments in that scheme without any exit load. However, one important thing to note here is that such redemption of investments may be free from exit load, but the gains made will still be liable for taxation as per the extant provisions.
This step by SEBI is certainly a welcome step aimed towards simplifying the investment options within the mutual fund sector. Make the most of it by seeing it as an opportunity to review your existing portfolio and its suitability to your investment goals.