Story on SEBI's circular of Oct 6, 2017, on categorisation of mutual fund schemes
http://www.cogencis.com/differentiators/ShareNews.aspx?newsId=1030425
SEBI lays out 6 categories & 38 sub-categories for open ended MF schemes to classify into
Securities and Exchange Board of India today laid out new
norms for categorization and rationalization of open ended mutual fund
schemes, following which the total number of schemes is likely come down.
There are around 830 open ended schemes in operation at present as per
current classification by Association of Mutual Funds in India. Of these, 257 schemes are classified by AMFI as income, 316 as equity, 28 as balanced, 52 as liquid, 41 as gilt and 42 as tax-saving equity.
These schemes will have to categorise themselves as per the new Sebi
norms which specify 11 categories for equity funds, 16 for debt funds, seven
for hybrid or balanced funds, two for solution-oriented funds and one each
for ETFs (exchange traded funds) and fund of funds.
One only one scheme will be permitted per category for a fund house, SEBI
said.
Further, after classifying a scheme in any one of these categories, the
fund house will to ensure a minimum threshold of investment in specific type
of securities or asset class.
For instance, a mid cap--and a small cap--equity fund will have to
minimum 65% exposure to mid cap stocks and small cap stocks.
Among debt funds, an ultra short duration fund will require its portfolio
duration to be between three months and six months, while a low duration
fund's portfolio duration will have to be in the 6-12 months range.
IMPACT
With the latest move by SEBI, the number of mutual fund schemes is likely
to come down.
A fund house having more than one schemes with similar investment
objectives and which can not be fit in more than one of the new specified
categories will have to merge these schemes into one category.
According to LIC Mutual Fund's CEO, Raj Kumar, it was getting too
confusing for investors to navigate multiple schemes with similar investment
objectives.
"The clear definition of the schemes will give clarity to the investors
where a scheme is investing," said Gopal Agrawal, chief investment
officer-equities at Tata Mutual Fund.
SEBI said in today's circular that there was as need to bring in
uniformity in the characteristics of similar type of schemes launched by
different mutual funds.
Going forward a fund house will be able to successfully get SEBI's
approval for a new scheme launch only if it does not already have a scheme in
the category under which the new scheme falls.
For equity funds investing in large cap, mid cap and small cap stocks,
SEBI has simplified matters by laying out their definitions.
Large cap companies will include the top 100 companies by market cap
while mid cap companies will include the next 150 companies by market cap.
Small cap companies are defined as those which fall beyond the top 250
companies by market cap.
Based on current market cap levels, and using the new definitions, the
smallest large cap stock has a market cap of 260 bln rupees while the
smallest mid cap stock has a market cap of 76 bln rupees, according to
Agrawal.
TIME TO COMPLY
SEBI has given fund houses time till Dec 6 to analyse each of their
existing schemes and revert to SEBI with the category classification of each
scheme and proposals, if any, to merge multiple schemes into one category.
Within three months after SEBI reviews a fund house's proposals and issues its observations, the fund house will have to have ensure completion of all action to comply with the new scheme categorisation norms. End
http://www.cogencis.com/differentiators/ShareNews.aspx?newsId=1030425
SEBI lays out 6 categories & 38 sub-categories for open ended MF schemes to classify into
Securities and Exchange Board of India today laid out new
norms for categorization and rationalization of open ended mutual fund
schemes, following which the total number of schemes is likely come down.
There are around 830 open ended schemes in operation at present as per
current classification by Association of Mutual Funds in India. Of these, 257 schemes are classified by AMFI as income, 316 as equity, 28 as balanced, 52 as liquid, 41 as gilt and 42 as tax-saving equity.
These schemes will have to categorise themselves as per the new Sebi
norms which specify 11 categories for equity funds, 16 for debt funds, seven
for hybrid or balanced funds, two for solution-oriented funds and one each
for ETFs (exchange traded funds) and fund of funds.
One only one scheme will be permitted per category for a fund house, SEBI
said.
Further, after classifying a scheme in any one of these categories, the
fund house will to ensure a minimum threshold of investment in specific type
of securities or asset class.
For instance, a mid cap--and a small cap--equity fund will have to
minimum 65% exposure to mid cap stocks and small cap stocks.
Among debt funds, an ultra short duration fund will require its portfolio
duration to be between three months and six months, while a low duration
fund's portfolio duration will have to be in the 6-12 months range.
IMPACT
With the latest move by SEBI, the number of mutual fund schemes is likely
to come down.
A fund house having more than one schemes with similar investment
objectives and which can not be fit in more than one of the new specified
categories will have to merge these schemes into one category.
According to LIC Mutual Fund's CEO, Raj Kumar, it was getting too
confusing for investors to navigate multiple schemes with similar investment
objectives.
"The clear definition of the schemes will give clarity to the investors
where a scheme is investing," said Gopal Agrawal, chief investment
officer-equities at Tata Mutual Fund.
SEBI said in today's circular that there was as need to bring in
uniformity in the characteristics of similar type of schemes launched by
different mutual funds.
Going forward a fund house will be able to successfully get SEBI's
approval for a new scheme launch only if it does not already have a scheme in
the category under which the new scheme falls.
For equity funds investing in large cap, mid cap and small cap stocks,
SEBI has simplified matters by laying out their definitions.
Large cap companies will include the top 100 companies by market cap
while mid cap companies will include the next 150 companies by market cap.
Small cap companies are defined as those which fall beyond the top 250
companies by market cap.
Based on current market cap levels, and using the new definitions, the
smallest large cap stock has a market cap of 260 bln rupees while the
smallest mid cap stock has a market cap of 76 bln rupees, according to
Agrawal.
TIME TO COMPLY
SEBI has given fund houses time till Dec 6 to analyse each of their
existing schemes and revert to SEBI with the category classification of each
scheme and proposals, if any, to merge multiple schemes into one category.
Within three months after SEBI reviews a fund house's proposals and issues its observations, the fund house will have to have ensure completion of all action to comply with the new scheme categorisation norms. End
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