What Does SEBI Re-classification of Mutual Fund Categories Mean For You?

SEBI Recategorization

If you already are a mutual funds investor, then you may be aware of the fact that many mutual funds are now re-classified, renamed, merged or re-purposed. Essentially, this is referred to as Categorization and Rationalization of Mutual Fund Schemes in India.

Some time back, in accordance with the instructions of the Securities and Exchange Board of India (SEBI), mutual fund houses re-classified their schemes. The question that follows is: what is the logic behind this move? What does this entail and how does it impact you?

Three Different Categories

For one thing, it’s worth noting that only some funds have been changed. And the ones that have changed can be divided into three different levels.

  • Funds whose names were changed
  • Funds that have been merged with other funds
  • Funds whose categories were changed altogether

Supposedly, approximately 50-60 percent of the total amount of funds has only changed names. For example, the ICICI Prudential Balanced Fund has been renamed to ICICI Prudential Equity and Debt Fund. Its initial characteristics remain unaltered.

Meanwhile, up to 30 percent of the mutual funds have seen a change in investment style. And the remaining funds have changed their schemes and merged with other schemes. Merged schemes would look something like:

  • There is scheme A and scheme B.
  • B merges with the scheme, which has little impact on scheme A, but
  • Significant impact on scheme B.

Is There Something You Should Do?

After reading this, you might wonder whether there is something you should do in this respect or not. In the position of a mutual fund investor, the first thing you should do is assess your investment portfolio to pinpoint what’s going on with your holdings. Evidently, you should go through every scheme. If you do that and you don’t notice any change whatsoever, then you don’t have to worry about a thing.

But, what if there are changes? From an investor’s viewpoint, the changes that actually have an impact are the second and third type of change – when the scheme’s category has changed or has been merged with a different one. Of course, it all depends on your individual circumstances – as there is no blanket advisory. You have to analyze the situation, whether the changes drastically alter your risk profile or duration.

In addition, if you see a significant change in the objective of the fund, then it is important to take a closer look and realign your portfolio.

It is highly advisable to assess your portfolio and determine whether you intend to remain in the same category or not. It goes without saying that the category changes can be quite diverse – in some cases, the risk can go down; while in others, it can go up. What you should do is analyze your situation depending on your requirements.

What Does SEBI Re-classification of Mutual Fund Categories Mean For You?
Scroll to top