Last Updated : Jul 18, 2018 05:03 PM IST | Source:

Managing Money With Moneycontrol | What does re-categorisation and rationalisation of mutual funds mean?

Gajendra Kothari, MD and CEO of Etica Wealth Management shares actionable insights on various re-categorisation of MF schemes present in the market.

Moneycontrol PF Team

A significant change related to mutual funds was recently proposed by the Securities and Exchange Board of India (SEBI). The regulator announced re-categorisation and rationalisation of mutual funds scheme. In the accompanying video, Gajendra Kothari, MD and CEO of Etica Wealth Management shares actionable insights on various re-categorisation of mutual funds schemes present in the market.

Q: Will mutual fund schemes change after this re-categorisation?

A: In the re-categorisation, SEBI has done a splendid job by classifying which scheme comes into what category. For an equity fund, they have laid down 10 categories. Few are based on the large-cap fund, mid-cap fund or small-cap fund, etc. Hence, it is much easier for investors now to compare apples to apples which means if I have to compare large-cap or mid-cap funds, I can compare all the schemes in that space. It will be a great help for retail individual investors too.

Q: Will this move bring less disparity and more schemes in a category?

A: Earlier it was all confusion. in each category, there were about 40 funds. Even advisers find it difficult to compare. But after re-categorisation things will be clarified very clearly. It will be easier for investors to choose funds and hence, fund managers will have very little room to play with the objective of the fund.

Q: Is it time to exit unsuitable funds and re-connect with AMC to get suitable funds?

A: This is a good time to look back at your portfolio. You have seen many investors have around 8-10 funds and most of the time these funds are overlapping. Hence, it is the time to clean up your portfolio. You can check the latest factsheet on the respective website. Also, make sure you have only three-four categories in your portfolio. Each category should have only one fund. Having two or three funds in category results into duplication. You need to get away from that. Hence, you should have one fund one category and not more than four funds overall.

Q: Is it a time to reject the old portfolio structure?

A: The ideal way which we tell our investors is to have goal-based planning. Rather than just chasing returns, it is better to link your funds to goals. So you should have some short-term, medium-term goals and long-term goals. For long-term goals, you can go for aggressive funds like multi-cap category or a small/mid-cap category. For the near term goals which are like just three years or five years, you can go for hybrid funds which have a mix of equity and debt. Also, depending on your risk appetite, if you are a conservative investor, stay on the lower end of the equities and if you are a young investor, you can take more of equities. So when you will sit with your adviser, you will be able to discuss all of this that how you should frame your new portfolio.

To know more about re-categorisation and rationalisation of mutual funds, watch the accompanying video above.

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First Published on Jul 17, 2018 02:54 pm
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