SEBI, the capital market regulator is back. It's reforming the mutual fund sector in India. SEBI wants you to make the best choice, before putting your hard earned money in mutual funds. So, it has come up with an innovative reform. As per rules of SEBI, mutual funds will be categorized into five schemes: equity, debt, hybrid, solution oriented and other schemes. Mutual funds have a practice of launching multiple schemes with similar themes. This will soon come to an end.
Take a look at this. Between 45 Mutual fund houses, there are more than 1200 mutual fund schemes on offer. You have about 400 equity schemes, 300 debt schemes and around 426 hybrid schemes. How would you pick up the right mutual fund scheme that best suits your needs?
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SEBI asked mutual funds to ensure that schemes devised under the news norms should not result in duplication vis-a-vis other plans offered by them. SEBI allows only one scheme per category, except index funds, exchange traded funds tracking different indices; fund of funds having different underlying schemes; sectoral or thematic funds investing in different themes.
SEBI has divided the mutual funds into 5 segments. Equity, debt, hybrid, solution-oriented and other schemes. Under each of these segments, SEBI has allowed categories.
SEBI has also defined large cap, mid cap and small cap companies. Top 100 Companies in terms of market capitalization are called large cap, the next 101-250 Companies in terms of market capitalization are called mid cap and the Companies ranking from 251 onwards in terms of market capitalization are called small caps.
You will find the list updated on the AMFI website, twice a year. These rules are applicable for all open-ended schemes of mutual funds, schemes which have received Sebi’s clearance but not launched, all open-end schemes where draft documents have been filed with Sebi as on date and all open-end schemes where mutual fund is planning to file draft scheme document.
Mutual funds have a maximum of 3 months to carry out all the necessary changes.
Different mutual funds define large-cap, mid-cap and small-cap schemes in a different way. Franklin India Bluechip Fund is a large-cap fund which invests in companies whose market capitalization is higher than that of the 100th stock in the Nifty 500 index. ICICI Prudential Focused Bluechip Equity Fund, which is also a large-cap fund, invests in top 200 stocks in terms of market capitalization on the National Stock Exchange of India.
Having a uniform definition for large-cap, mid-cap and small-cap schemes can avoid a lot of confusion making investing in mutual funds quite easy for you.
SEBI's new rules on mutual funds are a step in the right direction. But, even after segmentation and categorization, there are still too many schemes around. Investors are still confused and further steps might be necessary in the mutual fund sector. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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