Expert advice

Mar 07, 2018,11.40 IST

How does consolidation of mutual fund schemes affect your fund choices?

Juzer Gabajiwala

The big bang announcement of 2017 in the mutual fund industry was categorization and rationalization of mutual fund schemes by Securities and Exchange Board of India (SEBI). The market regulator sought to bring uniformity in the characteristics of similar schemes to ensure that an investor is able to evaluate various options before making any investment. Earlier, in the absence of any standard definition of MF categories, mutual fund companies and research & advisory firms came up with their own methodologies of categorizing funds. This made it difficult for investors and advisors to evaluate and compare funds and select suitable ones for investment.

As per the circular, SEBI has demarcated a total of 36 categories under 5 broad groups

Equity Schemes (10 categories)

Debt schemes (16 categories)

Hybrid Schemes (6 categories)

Solution Oriented Schemes (2 categories)

Other Schemes (2 categories)

Below are the salient features of major equity and hybrid categories as proposed by the SEBI circular -

Equity Funds:


*Stocks are as per AMFI’s list of Average Market Capitalization of listed companies during the six months ended 31-Dec 2017

Hybrid Funds:


*Mutual funds will be permitted to offer either Balanced Hybrid or Aggressive Hybrid.

Additionally, it is said that fund houses shall be allowed to have just one scheme per category.

Impact of SEBI’s mutual fund categorization and rationalization:

Simplification, less confusion

SEBI has defined asset allocation (scheme characteristics) for schemes under each type of category.

Every fund must adhere to the category in which it is placed.

A fund in the each category will have to follow the criteria’s specified as per the category.

Only one scheme per category permitted, this will simplify selection of funds for investors and advisors.

Better comparison

Due to standard categorization, comparison of schemes will be easier and one would be able to conduct an apple-to-apple comparison for each category.

A better comparison would help in decision making.

A clear classification will help to understand and follow the risk, return and performance of funds.

Need to merge or reclassify schemes

Among the top 10 AMCs, there are at least 2 AMCs offering more than 1 fund in the large cap category. Similar schemes will have to be either merged or reclassified into different category.

Due to the ‘1 scheme per category’ criteria, there would be a reduction in duplication of schemes.

In case of reclassification, the schemes would have to undergo certain strategic changes in order to meet the criteria of SEBI’s mandate.

Note: Market capitalization of any company is calculated by multiplying the company's number of shares outstanding by the current market price of one share. Full market capitalization will be calculated depending on whether the stock is listed on only one stock exchange or on more than one stock exchange. AMFI will upload the list of stocks on its website every six months based on data at the end of June and December every year.
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