For novice investors in the MF, who want to take direct plans and do not want to involve the intermediary to miss on the commission to them, the new respite has come in with the regulatory changes advised for them. In October this year, the market watchdog requires distinction of funds' into 5 categories and only one scheme in each of the category shall be on offer except for the thematic funds, fund of funds or sectoral funds and ETFs which track some underlying.
The proposed 5 sub-categories include equity, debt, hybrid, solution oriented and other schemes. Through the SIP route or otherwise inflows in the mutual fund investments have been constantly rising and recently equity mutual funds lapped up a total investment of Rs. 1 lakh crore.
So, in case the fund currently offers similar schemes they'll either have to be merged or shall be taken off the shelves. Also for customer's to better arrive at a decision in respect of mutual fund investment, the regulators have asked for sure shot distinction in respect of both allocation as well as strategy for investments.
The fund houses are require to comply with the instructions in the next 2-3 months timeframe.
So, how it gets beneficial for the investor?
1. Better investment decision making- As lower number of similar schemes shall be offer and investors depending on their goal can choose from the mix that suits their strategy and asset allocation patter.
2. Lowe expense ratio: With lower schemes, the fund will now incur lesser expense towards the entire fund management which in turn means more gains for the investor upon maturity of the mutual fund.
3. Restriction to allocate some limited sum in each of the categories: Reduces likely risks in respect of investor losing their invested capital.