Mutual funds in India are set to see a sea change as the Securities and Exchange Board of India directed fund houses to re-categorise their schemes into new categories so as to bring in uniformity in the process of categorization of schemes across mutual funds.
In October 2017, Sebi ordered the standardization of scheme categories Thus in compliance of it some of the mutual fund houses are either merging their schemes or are changing the specifications of their schemes.
In the debt mutual funds space, 16 new categories have been introduced. Here are specified all the 16 categories together with the asset allocation plan for each of them.
1. Overnight funds: Such a debt scheme will be open ended and invest in overnight securities with a maturity of just one day. These will carry the lowest risk
2. Liquid funds: Funds in the scheme will be invested in money market and debt securities with a maturity of up to 91 days. Idle savings of a retail investor can be parked in such a fund scheme.
3. Money market funds: This new category will invest in money market instruments such as T-bills, commercial paper with maturity upto one year.
4. Low duration funds: Such a open ended debt scheme will invest in instruments with a maturity spanning 6 months to 1 year.
5. Ultra short duration funds: These open-ended ultra short duration scheme will invest in instruments maturing between 3-6 months.
6. Short duration funds: These open-ended debt schemes will invest in instruments with a maturity time frame between one year and three years.
7. Medium duration funds: Investment in such a scheme will be made in instruments with a maturity between 3-4 years.
8. Medium to long duration funds: Such an open-ended scheme will invest in instruments with a maturity between 4-7 years.
9. Long duration funds: Investment in such an open-ended scheme will be made in instruments with a maturity of over seven years.
10. Corporate bond funds: Such an open-ended scheme will primarily invest in top-rated corporate bonds with a minimum of 80% exposure in them.
11. Dynamic bonds: The scheme will invest in instruments with varying maturities
12. Banking and PSU funds: Such a scheme will primarily invest 80% of the assets in debt securities of banks, public sector financial undertakings and other PSUs.
13. Gilt funds: The scheme will invest in G-securities with varying maturities. A minimum of 80% of the total assets are required to be invested in G-sec.
14. Gilt fund with 10-year constant duration: These open-ended debt schemes will invest in G-securities with a constant 10-year duration. As with gilt funds, minimum of 80% of the total assets are to be invested in G-sec.
15. Floater funds: The open-ended debt scheme will put money in instruments that carry floating rate.
16. Credit-risk funds: Such a debt scheme will invest in corporate bonds that feature a rating below the highest-rated.