The Securities and Exchange Board of India (Sebi) recently released a circular on categorisation and rationalisation of mutual funds, MFs, to ensure different schemes are clearly distinct in asset allocation, investment strategy etc. The market regulator wants to bring uniformity in the characteristics of similar schemes to ensure an investor is able to evaluate various options before making any investments.
Before this, there weren’t any standard definitions of MF categories. MFs were free to determine a scheme’s characteristics and investment strategy while seeking approval from Sebi to launch a fund, within a broad framework. As a result, MF companies, research and advisory firms came up with their own definitions and methodologies of categorising funds.
Further, MFs launched multiple schemes with similar strategies. For instance, currently there are around 280 open end equity funds including 65 to 70 large cap funds and a similar number of flexi-cap schemes, depending on the category definitions used, across 42 Asset Management Companies (AMCs) indicating multiple schemes with similar strategies being launched by AMCs.
