SEBI rolls out mutual fund reforms, categorises schemes in 5 categories

The reforms, which were anticipated by the industry, will make it easier for investors to evaluate their options before investing

Moneycontrol News

The Securities and Exchange Board of India (SEBI) on Friday announced some reforms in the mutual funds industry. The regulator has categorised mutual funds into five schemes — equity, debt, hybrid, solution oriented, and other schemes.

Fund houses will be allowed to have one scheme in each category, except for index funds/ETFs tracking indices, fund of funds and thematic schemes investing in different sectors.

The move is to bring in uniformity in the characteristics of similar type of schemes launched by different mutual funds and to standardise the scheme categories. The regulator wants funds to clearly distinct schemes in terms of asset allocation, investment strategy, etc.

The reforms, which were anticipated by the industry, will make it easier for investors to evaluate their options before investing.

“The regulatory direction is supportive of our belief that for investors to make optimal choices, the industry needs to offer fewer well-defined choices rather than a plethora of clones," said Aashish Somaiyaa, MD & CEO of Motilal Oswal AMC.

As per the circular, mutual funds would have to carry out the necessary changes in all respects within a maximum of 3 months.

The solution oriented schemes will have a specified lock-in period, but that would not be applicable to the existing investments made by an investor, registered SIPs (systemic investment plans) and incoming STPs (systemic transfer plans) in the current solution oriented schemes.

SEBI also defined the large cap, mid cap and small cap companies. The first 100 companies in terms of market capitalisation will be categorised as large cap companies, 101-250th companies as mid caps, and companies on ranks 251 onwards, will be defined as small caps.

The list will get updated on the website of AMFI (The Association of Mutual Funds in India) two times in a year based on the data at the end of June and end of December of each year.

The said rule will be applicable on all existing open-ended schemes of mutual funds, schemes which have received Sebi’s clearance but not launched, all open-end schemes where draft documents have been filed with Sebi as on date and all open-end schemes where mutual fund is planning to file draft scheme document.