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MF News SEBI comes out with uniform definitions for mutual fund schemes

SEBI comes out with uniform definitions for mutual fund schemes

The market regulator has broadly divided mutual funds into five categories – equity funds, debt funds, hybrid funds, solution oriented funds and other funds.
Nishant Patnaik Oct 6, 2017

In a bid to reduce the number of schemes in mutual funds, SEBI has come out with uniform definitions for fund categories. Simply put, the market regulator has defined various categories of mutual fund schemes to reduce confusion among investors and expedite scheme consolidation.

In a circular issued today, SEBI said, “It is desirable that different schemes launched by a mutual fund are clearly distinct in terms of asset allocation, investment strategy etc. Further, there is a need to bring in uniformity in the characteristics of similar type of schemes launched by different mutual funds. This would ensure that an investor of mutual funds is able to evaluate the different options available, before taking an informed decision to invest in a scheme.”

The market regulator has broadly divided mutual funds into five categories – equity funds, debt funds, hybrid funds and solution oriented funds and other funds.

To start with, equity funds will have 10 offerings – Multi cap fund (at least 65% exposure across market capitalization), large cap fund (having at least 80% exposure to large cap stocks), large and mid cap fund (at least 35% exposure to large cap and 35% to mid cap), mid cap fund (65% exposure to mid cap stocks), small cap fund (65% exposure to small cap stocks), dividend yield fund (65% exposure to dividend yielding stocks), value fund and contra fund (65% stocks in value theme or contra strategy, respectively), focussed fund (65% on focussed strategies), sectoral/thematic fund (80% exposure in a particular sector and thematic sector) and ELSS (80% on equity instruments).

Large cap stocks are the 1st to 100th companies in terms of full market capitalization. While mid cap stocks comprise 101st to 250th companies, small cap stocks consist of beyond 250th companies in terms of full market capitalization. AMFI will have to rank these stocks based on their market capitalization.

The market regulator has asked fund houses to give an exit option to investors without charging exit loads arising due to scheme consolidation.

The circular is applicable only to open ended funds.

SEBI has asked fund houses to adhere to these guidelines within two months in letter and spirit.

Here is the complete list of the categories

Equity funds

Portfolio construction

Multi cap fund

At least 65% exposure across market capitalization

Large cap fund

Having at least 80% exposure to large cap stocks

Large and mid cap fund

At least 35% exposure to large cap and 35% to mid cap

Mid cap fund

65% exposure to mid cap stocks

Small cap fund

65% exposure to small cap stocks

Dividend yield fund

65% exposure to dividend yielding stocks

Value fund and contra fund

65% stocks in value theme or contra strategy, respectively

Focussed fund

65% on focussed strategies

Sectoral/thematic fund

80% exposure in a particular sector and thematic sector

ELSS

80% on equity instruments

 

 

Debt funds

Portfolio construction

Overnight fund

Having exposure to papers with maturity of 1 day

Liquid fund

Maturity of up 91 days

Ultra short term fund

Maturity between 3 and 6 months

Low duration fund

Between 6 and 12 months

Money market fund

Having maturity of up to 1 years (mixed portfolio)

Short duration fund

Between 1 and 3 years

Medium to long duration fund

4 - 7 years

Dynamic bond

Investment across duration

Corporate bond fund

80% in high rated instruments

Credit risk fund

65% assets in low rated instruments

Banking and PSU fund

80% in instruments issued by banks, PSUs and PFIs

Gilt fund

80% in G secs across maturity

Gilt fund with 10 year constant duration

80% in G secs with average maturity of 10 years

Floater fund

65% in floating rate instruments

 

Hybrid fund

 Portfolio construction

Conservative hybrid fund

Equity - 10 to 25% and debt - 75% to 90%

Balanced hybrid fund

Equity - 40 to 60% and debt - 40% to 60%

Aggressive fund

Equity - 65 to 80% and debt - 20% to 35%

Dynamic asset allocation

Equity/debt - dynamic allocation

Multi asset allocation

At least three asset classes - minimum 10% in each

Arbitrage fund

65% in arbitrage opportunities

Equity savings

Equity-65% debt -10% and rest in hedged and unhedged instruments

 

Solution oriented

Portfolio construction

Retirement fund

Schemes having lock-in for at least 5 years or till retirement age whichever is earlier

Children fund

Schemes having lock-in for at least 5 years or till the child attains 18 whichever is earlier

 

Other schemes

Portfolio construction

Index funds/ETFs

95% in securities of a particular index

FOFs overseas/domestic

95% in the underlying fund

 

2 Comments
PRAKASH SHAH · 2 months ago
useful artical
Narayan Kini · 2 months ago
A good initiative from SEBI to start with. Yet a long list of categorization within equity funds. Large & Mid Cap could have been avoided. Contra, Div Yeild & value are all styles of picking stocks. Fund Manager has flexibility to follow these styles within any funds.This could have been eliminated straight away. Hope SEBI will follow up with more action and seriously look at closed ended fund NFOs too.
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