Types of mutual funds one should know about

Mutual fund houses can launch only a single scheme under each category. However, this rule will not hold good for funds-of-funds with varied underlying schemes, exchange-traded funds tracking varied indices and thematic and sectoral funds with investments in varied sectors.

Jan 27, 2018 02:01 IST India Infoline News Service

SEBI issued new guidelines on October 6, 2017 whereby mutual funds would be grouped under five categories and every fund house could have only a single fund from each category. In view of the fact that 830 schemes comprising of 317 open-ended schemes existed currently, SEBI’s guidelines of one-scheme-per category can be considered quite revolutionary.
 
Mutual fund categories grouped by SEBI
 
Mutual funds henceforth shall be grouped into five main categories which are:
  • Equity fund schemes
  • Debt fund schemes
  • Hybrid fund schemes
  • Solution-oriented schemes
  • Other fund schemes
Mutual fund houses can launch only a single scheme under each category. However, this rule will not hold good for funds-of-funds with varied underlying schemes, exchange-traded funds tracking varied indices and thematic and sectoral funds with investments in varied sectors. Though SEBI has restricted the categorization to five groups it has allowed for the existence of sub-groups under each category.
 
Equity-based mutual fund schemes include:
  • Largecap fund
  • Multicap fund
  • Large and midcap fund
  • Smallcap fund
  • Midcap fund
  • Dividend yield fund
  • Focused fund
  • Value fund & contra fund
  • Thematic/Sectoral fund
  • Equity Linked Mutual fund schemes
 
Debt based Mutual Fund Schemes Include:
  • Liquid mutual funds
  • Overnight fund
  • Low Duration funds
  • Ultra Short Term funds
  • Medium Duration funds
  • Long Duration funds
  • Medium to Long-Duration funds
  • Money Market funds
  • Dynamic fund
  • Credit Risk fund
  • Corporate Bond fund
  • Banking & PSU fund
  • Floater fund
  • Gilt fund
  • Gilt fund with constant duration of 10 years
 
Hybrid mutual fund schemes include:
  • Balanced hybrid fund & aggressive hybrid funds
  • Conservative hybrid funds
  • Dynamic asset allocation or balanced advantage funds
  • Arbitrage fund
  • Allocation fund
  • Equity savings
 
Solution-Oriented Schemes Include:
  • Children’s fund: With at least a 5 year lock-in period or till the age of majority is attained by the child whichever is earlier 
  • Retirement fund: With at least a 5 year lock-in period or the attainment of retirement age whichever is earlier
 
Other Fund Schemes Include:
  • Funds of funds (Domestic/Overseas)
  • Index funds/ETFs
 
Impact of categorization on investor portfolio
 
SEBI’s consolidation guidelines will have some impact on the existing portfolio of investors. If you have invested in 12 schemes then they may get reduced to 8 or 9. If you have invested in schemes of a specific asset management company then they may get reviewed and reduced. For example, HDFC Equity Fund and HDFC Top 200 can get consolidated. Another example to quote will be of SBI Magnum Midcap, SBI Emerging Businesses which may get merged into one and so on.  How much of this is given effect to in reality will, however, have to be seen. It is still a wait and watch scenario. The fact remains that this will facilitate making a like-to-like comparison between the mutual funds. Life is definitely going to be much easier for the investor who can choose the right mutual fund to suit his requirements without much hassle.

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