Can you please explain the recent mutual fund re-categorization rules? How will this affect investors?
—Ayushi Singh
A few months back, market regulator Securities and Exchange Board of India (Sebi) stipulated a set of rules to streamline fund categories, and asked mutual fund companies to comply with these in the next few months. There are three main parts to these rules that investors should be aware of. One, Sebi has listed a set of categories (with definitions) and has asked mutual funds to identify which category each of their fund belongs to. Two, once such a scheme has been pegged to a category, it has to stay within the boundaries of that category—it cannot move between categories (as many funds do today). Three, a fund company can have only one fund in one of these categories. For example, tax-saving fund is a category, and a company can have only one tax-saving fund in its roster. Similarly, only one large-cap fund; one mid-cap fund; etcetera. There are no such restrictions on sectoral funds. These can be as many as an asset management company would like to have.
