Why Choosing Mutual Fund Schemes Has Become Easier After the Recategorization?
SEBI's recategorization of mutual funds has caused a stir among a large number of investors. People are not realizing the fact that this step was solely taken for the benefit of investors.
Now, one of the direct benefits of this step is that the process of choosing mutual fund schemes has become a lot smoother, and today, we are going to discuss the same. So, let's see how things have become easier for you as an investor.
Now the Name Defines it All
The first effect of the re-categorization is that many schemes have been renamed as per their category and objective. Previously, some schemes used to take up flashy names for the sole purpose of attracting investors, and many schemes even after being named on a particular category failed to follow the characteristics, which schemes from that respective category should follow.
But now, as per SEBI norms, schemes can only choose names which define the categorization and objectives it will be following for the rest of its life. For e.g., if a scheme is named of a large-cap fund, then it has to make more than 75% of investment in companies that are in top 100 as per the market capitalization, and the concerning fund house can only launch a single scheme from this particular category.
So, now investors don't have to analyze portfolio and asset distribution of different schemes to know about their investment style and market-cap allocations, as same can be known just by a glance at the name of the scheme.
Lesser the Options, Lower the Confusion
Previously, many of the schemes even after being from the same AMC used to follow a similar investment objective and were even lying in the same category. But after re-categorization, SEBI ordered such funds to merge as one, and told the fund houses that they can only launch a single scheme from a specific category.
Thus, the total number of schemes have gone much lower, and the direct benefit of that will be experienced by the investors. How? Well, let's see.
Say, you want to pick a hybrid fund. For this, you’ll certainly compare different schemes from this category to choose the one which is best. Now, before the re-categorization, the hybrid category was a single entity and a single AMC held multiple schemes in it, which caused a lot of confusion among investors when they used to compare hybrid schemes from various AMCs. But now, the hybrid schemes are divided into 7 different subcategories, which are aggressive hybrid, conservative hybrid, balanced hybrid, dynamic asset allocation, multi-asset allocation, arbitrage, and equity savings. Henceforth, the investors can choose and compare only those hybrid schemes which suit their investment style and the same goes for the other categories as well.
The advantage of it is that now the number of schemes from a particular category are comparatively very less, which means that the time and effort required to choose and compare schemes will also be lower, and so will be the confusion.
On a final note, we hope that all your categorization related doubts are over. SEBI is an agency which is created for the purpose of taking decisions that are in benefit of investors and it will not do anything that will compromise their profit. If you have any queries regarding the schemes that have underwent changes due to re-categorization, then you can contact our experts at MySIPonline.