To make mutual fund selection process easy for prospective investors, SEBI in October 2017 notified new fund categories. Post which mutual fund houses or AMCs submitted their re-structuring proposals to the market regulator by December 15,2017. While some of the AMCs have been given a nod to the proposal by the market watchdog, some are yet to get a go-ahead in due course after further deliberation. Let us now see, how the new fund categories introduced by the SEBI will make mutual fund investments easy for you:
Mutual fund revamp
It is generally through the name of the mutual fund that investors draw an inference about the fund i.e. where it would invest an investor's money be it debt, equity or hybrid category. But, mutual funds with the implementation of newly proposed changes will have to comply or fit to the newly introduced categories with or without name change.
So, in line some of the funds have been re-named as for example Franklin India Prima Plus has been renamed Franklin India Equity Fund.
Also when a fund house has more number of fund schemes with similar description, it has to either merge those schemes or fit them into different categories with a different fund management mandate. Say for example, HDFC Mutual Fund has proposed to merge HDFC Prudence Fund and HDFC Growth Fund into HDFC Balanced Advantage Fund.
An important point to make here is that after the overhaul, the asset management company, as part of the definitive framework provided by the SEBI, will mention the category to which a particular fund belongs. Also, as in the previous instance, mutual fund investors would be provided the support of advisors if they happen they make investments through the advisory route and the same time can also download fund details provided in the Scheme Information Document (SID).
What investors can do after scheme changes by fund houses are implemented?
To comply with SEBI's re-categorisation norms, while most mutual fund houses have brought some or the other changes, either by way of renaming the scheme or providing the contours of the scheme in a more definitive way, you as an investor may be worrying about what move should you be taking. So as a respite, if new terms of the scheme do not fit your investment objective, in accordance with the rules, AMCs will allow a one-month exit window during which investors can exit the scheme with no exit load charges, if any for the scheme.
So, as an investor when you get the notice from your AMC concerning the exit-window, it does not necessarily mean the mandate of the scheme has changed drastically and you compulsorily need to exit. And so before taking any of the possible call, you ought to factor in some of these points:
• In case the fund name continues to remain the same with a more well-defined mandate now, it is yet a better proposition for you considering the fact that you were satisfied with the previous mandate.
• If there is a name change in the scheme with a slightly modified mandate, you can still stay put.
• And in a scenario, when the fund scheme to comply with the latest SEBI re-categorisation norms, repositions itself with a name change and new mandate, herein you need to give a deep thought and ascertain whether or not the new terms are as per your objective.
It is to be noted that in case two similar schemes say A and B get merged and features of one of the scheme i.e A is continued then the mutual fund performance of scheme A will be disclosed. And when, the two schemes upon merger maintain the features, the weighted average performance of the two schemes in NAV terms will be declared.