Thanks To SEBI, Comparing And Choosing Mutual Funds Get Simpler

Sebi’s latest move towards Categorization and Rationalization of Mutual fund Schemes will make the comparing and selecting process of the right mutual fund scheme easier.

- Sanjiv Puri

On 6th October 2017, for the mutual fund investor in the country, the rules of the game witnessed radical changes. The Securities and Exchange Board of India (SEBI) on that day issued a circular in order to rationalise and categorise open-ended mutual fund schemes in India. The fund houses were asked to undergo categorization and rationalization of mutual fund Schemes to take forward the ongoing growth of the industry to higher levels.

Overall, this move is expected to de-clutter the existing scene by simplifying investments in mutual fund for investors and thereby enhance better comparability within the schemes offered. The new standards will offer flexibility to investors on the nature of investments and risk exposure.

Let’s see why was there a need to bring about such changes and what exactly are those new standards set for the fund houses. An investor of mutual funds should be able to evaluate the different options available, before taking an informed decision to invest in a scheme. Therefore, 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.

In order to bring the desired uniformity in the practice, across mutual funds and to standardize the scheme categories and characteristics of each category, the issue was discussed in Mutual fund Advisory Committee.

Accordingly, it has been decided to categorize the MF schemes as given below:

i. Categories of Schemes

ii. Scheme Characteristics

iii. Type of Scheme