Skip to main content

How Mutual Fund Classification will Impact your Portfolio

Best SIP Funds Online 


At the time when equity mutual funds are receiving massive monthly inflows in equity and balanced mutual funds, going up to around  Rs 25,000 crore, the capital markets regulator Securities and Exchange Board of India (SEBI) has come out with new classification of mutual funds. It's intended to make the mutual fund selection process easier for investors.


According to the new classification, the mutual funds schemes will be classified into five broad categories-- equity schemes, debt schemes, hybrid schemes, solution oriented schemes and other schemes. Solution-oriented schemes will be retirement or children funds.


Equity schemes can be further classified into 10 sub-categories such as large, mid, multicap, small cap et. Debt schemes can be classified into 16 sub-categories while hybrid funds can be further classified into six sub-categories. Only one scheme per category will be permitted.


Sector or thematic funds, closed-end funds, fund of funds are kept out of the purview of this classification.


Fund houses have been given two months time from the date of the circular to review their classification and submit the proposal with SEBI. And after SEBI clears their proposal they will have to carry out the necessary changes within three months time.

Schemes will be comparable:

 The biggest advantage of this classification is that it will make mutual fund schemes comparable. Right now it's a bit difficult as each fund has its own definition of large-cap, mid and small cap stocks. Therefore, even in a large-cap category the weighted average market capitalisation of mutual funds range between 29,000 crore to 1,90,000 crore. In order to bring in uniformity among fund classification, SEBI has also given the definition of large, mid and small cap stocks.


Large cap will be defined as 1st to 100th companies in terms of full market capitalization. 101st to 250th company as per full market capitalization will be termed as mid caps and from  251st company onwards will be classified as small cap.  


This new classification will ensure that for example if an investor has invested in a large-cap fund, it will remain a large cap fund throughout


There won't be duplication of schemes as it is happening right now where a fund house has two or more schemes in a category with similar strategy.


Also, among debt funds the classification has been made much more clearer as per the weighted average maturity of the portfolio. New categories has been introduced by SEBI such as overnight funds which will invest in securities with duration of just one day. 

  

SEBI has not addressed the credit risk in the new classification of debt funds as it is currently based on only average maturity which may not be very helpful for the retail investor. There are broadly eight categories of debt funds right now while as per new classification it will go up to 16. SEBI could have retained the existing classification and defined them more clearly in terms of average maturity and credit risk

Performance may be impacted


There are three reasons why the scheme's performance will be impacted with the new classification.

a) Right now funds, even a large cap fund, has the liberty to invest a portion of their portfolio in mid and small cap stocks, which helps them generate alpha. This is called style drift and it may not be possible after the new classification is implemented. Therefore there may be lesser alpha generation compared to benchmark. Right now the alpha generation is done through stock picking while going forward fund manager will be able generate alpha by being underweight or overweight on stocks as compared to benchmark or peer as the universe will be limited and same for all,


b) As per the new mandate, if a fund wants to be classified as a large-cap fund then it will have to invest in the stocks defined as large-cap by this regulation. Therefore, it will have to buy some stocks or may have to sell few which will have an impact cost in the short-term and will have to be borne by the investor.


c)Finally, the fund will have to rebalance the portfolio as per the list of large, mid and small cap stocks published by AMFI on a six monthly basis.


So, if a stock has become large-cap as per the definition then a mid cap fund won't be able to hold it even if the fund manager sees potential in it. So, this will result in forced selling and may impact the performance of the fund.

However, the new classification is considered a step in the right direction as it will bring clarity, uniformity among mutual fund buts investors may see some impact on performance over short-term.



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

NPS - How much to Invest?

  Though the deduction offered under Section 80CCD (1B) is `50,000 , it is not advisable to put the entire amount at one go. It is best to stagger your investments across several months, much like the SIP strategy in a mutual fund. However, don't make too many small contributions. There is a transaction charge of 0.25% or `20 (whichever is higher) on every contribution. If you invest `500-1,000 every month, you pay `20 per contribution, which works out to 2-4%. Invest at least `5,000-10,000 at one go. Remember, at most `2,500-5,000 of this will go into equities if you have chosen the maximum 50% allocation to stocks. The rest will flow into corporate bonds and gilt funds as per your desired allocation. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver ...

Mirae Asset India-China Consumption Fund

Mirae Asset India-China Consumption Fund     Mirae Asset India-China Consumption Fund is the first of its kind fund that focuses on the consumption theme in Asia's two biggest economies India and China. It offers a flavor of both Indian and Chinese consumer stocks in a single portfolio $ . We are delighted to share that we have declared a dividend as below.   Scheme/Plan Quantum of Dividend (per unit) NAV of Dividend option as on March 11, 2015 (per unit) Record Date Face Value (per unit) Mirae Asset India -China Consumption Fund – Regular Plan – Dividend Option Rs. 2.00/- per unit (subject to availability of distributable surplus as on the record date) Rs. 18.302/- Wednesday, March 18, 2015 * Rs.10.00/- Mirae Asset India-China Consumption Fund is the first of its kind fund that focuses on the consumption theme in Asia's two biggest economies India and China. It offers a flavor of both Indian and Chinese consumer stocks in a single por...

Shriram Transport Finance FD

Shriram Transport Finance Co. Ltd (STFC) is self explanatory. They have decided to revise the Interest rates on "Shriram Unnati" Fixed Deposit w.e.f. 1 st April'15 . The revised interest rates applicable will be as given below:   Tenor Rate (p.a.)* 12 months 9.00% 24 months 9.50% 36 months 9.75% 48 months 9.75% 60 months 9.75%   *Senior citizens will get an additional rate of 0.50% per annum. This is only an advanced information, enabling us to inform our investors and advise them to take maximum advantage of current interest rates applicable till 31 st March,15.   Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under S...

EPF or NPS - Why not both?

  In the Budget, Jaitley also empowered the corporate employees to choose between the EPF and the NPS. The details are awaited but this could be a big change in the way Indians save for retirement. However, your employer must be ready to shift to the NPS as well. Should you shift to NPS if it is allowed? Experts say you should opt for both . NPS offered by corporates now is additional to the EPF , so the same structure should continue in future also. However, much will depend on the rules and whether employers and the Labour Ministry will embrace the change.     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by inv...

Comparison of Tax Saving Funds

Comparison of Tax Saving Funds As on 11.02.2015             Scheme Name 1M  3M  6M  1Y  [%]              Rank [%]              Rank [%]              Rank [%]              Rank Reliance Tax Saver (ELSS) Fund(G) 0.99   51/59 7.52   33/57 14.34   22/55 88.54   1/54 IDBI Equity Advantage Fund-Reg(G) 2.44   30/59 10.1   17/57 25.85   1/55 85.12   2/54 Axis LT Equity Fund(G) 5.26   4/59 11.8   3/57 19.44   9/55 72.16   3/54 SBI TAX Advantage Fund-I(G) 6.28   2/59 10.28   15/57 8.08   48/55 71.13   4/54 SBI Tax advantage Fund-II(G) 4.44   6/59 6.44   43/57 9.52   42/55 68.87   5/54 ICICI Pru R.I.G.H.T Fund(G) 3.47   12/59 9.52   21/57 17.44   11/55 67.21   7/54 Birla SL Tax Relief '96(G) 3.19   17/59 ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now