Sep 12, 2017 3 min read

SEBI is Planning to Impose New Rules on Mutual Funds

The number of mutual fund schemes will reduce to half. Know more.
Securities Exchange Board of India (SEBI) may reduce the number of total mutual fund schemes by half. The mutual fund advisory panel of SEBI has recommended the AMCs to provide strict definitions for the plans they offer. The failure to prove the distinct nature of any scheme may result in the shutdown or the merge of the fund with the other of similar category. It may ultimately bring down the total number of mutual funds by half.

Let’s Know More in Detail:

In India, there are over 2000 mutual fund schemes which are being handled by 42 asset management companies. The total assets under management of all the plans amounts to Rs. 20.6 trillion by the end of August 2017. There are majorly three categories, viz., Equity, Debt, and Hybrid. Furthermore, these classes are divided into various sub-categories as per their investment nature. The classifications of mf scheme are being overloaded, and it is getting more difficult for the investors to select the most suitable one from the ocean.

The increasing number of distinctions in the categories of mutual fund schemes is changing into a challenge for the investors. For instance, there are three schemes under the large-cap category of a top asset management company. But when you do a careful observation of their portfolio you may find that all are investing almost in the same stocks, and only two or three stocks vary in the portfolio to create distinction. It leads to significant confusion for the investors when choosing among the best because choosing from very closely related schemes becomes more difficult.

To avoid such kind of problems for the investors, this time SEBI may impose new rules. SEBI is looking to notify this information by the end of this month, or in its subsequent board meets. Currently, it nomenclature rules for mutual funds loosely define just two aspects- whether the fund is open-ended or close-ended, and whether it invests in equity or debt. Furthermore, the category and nomenclature rule will help the panel to ensure that the scheme name reflects the nature of its investments. It imposes that if a fund comes under the large cap funds, then it needs to invest 80% of the money received into large-cap stocks. According to the new rules by SEBI which might be knocking the doors of fund houses soon, the clutter of choosing from a puzzle of a number of schemes will reduce to the minimum.

Impact of the Rule:

SEBI is aiming to remove the duplication of funds which will aid decision making of the investors and cut through the clutter of 2000 investment schemes. If SEBI successfully imposes this rule, how may the possible changes occur and what be the impact?

It will have although positive effects as the fund will invest 80% of the capital in the respective category. Schemes which will be holding similar nature will be merged and if any plan does not meet the regulatory criteria will be shut down. The fund houses are already planning the mergers of the schemes before the axe falls. The proper and distinct classification of the funds will help the investors to choose the correct one for the best exposure in the investment world.

For the investors, it is beneficial as they need not to panic in selecting the best scheme under any category when the number of funds will reduce. Furthermore, the objective and the nature of the investments will be understood by the name of the scheme which will aid to segregate them. Similarly, we believe in providing the best experience of investing in mf to the investors through our portal, i.e., MySIPonline. So, to start your investment journey hassle-free and create wealth systematically for the future goals, get associated with us right away.