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Everything you need to know about the new mutual fund categories

Author: Raghav Mehera
by Raghav Mehera
Posted: Mar 28, 2019

Even though mutual funds were not the first preference when it came to Indian investors, in recent years the trend has seen significant changes. With more investors looking to invest in mutual funds, SEBI has revised some of the mutual fund categories.

The changes have been made to make it easier for investors to understand their choices regarding mutual funds. SEBI has set some specific criteria to define each category of mutual funds, which was not the case before.

Let us take a look at what the changes mean!

What do the changes include?

The most important change that SEBI has brought to mutual fund investments is limiting their opportunity to jump from one category to the other. The criteria of each category are much more specifically defined and the categories have to adhere to them.

Doing the above has made it easier for investors to follow through with their investments. They can now be more informed about the mutual funds as well as keep up with their strategies to get better returns.

With these changes some new categories have been introduced while some of the existing categories have been renamed.

Below are some of the changes that have occurred in the various types of mutual fund investments.

Changes in equity:

Following are the major changes that have been brought to equity funds:

  • The categories that have been introduced in equity either fall under market-cap strategy or segment, which helps to gauge their risk level effectively.
  • Among the different equity fund categories, index funds have been put in the lowest risk category while thematic funds are the highest risk categories.
  • A new category called the "large and mid cap" category has been introduced which should have 35% of both mid and large cap funds.
  • New categories based on strategies have been introduced. Some of them are dividend yield funds, focused funds, contra funds and value funds. They belong to the multi-cap funds and are defined according to the strategies they choose to follow.

Changes in Debt:

Some of the changes brought to debt mutual funds are as follows:

  • Debt funds have been categorised by their strategy and duration.
  • In terms of their time frame, the debt funds can be divided into the following categories:
  1. Long term debt funds: they have a holding period of minimum three years. They are for people who want to invest long term and do not have a good return in short term.
  2. Short term funds: These are funds with duration of a year or more. They include funds with low risks and good returns.
  3. Ultra short term funds: They have a holding period between 6 months and a year. They have short maturity and are less volatile than funds of other categories.
  4. Liquid funds: These are funds with a holding period of a few days to up to 6 months.

Changes in hybrid funds:

The features of hybrid funds as defined by SEBI are:

  • Funds with instruments from multiple classes of assets come under the hybrid category.
  • Monthly Income Plans and Balanced funds are the two most important categories under hybrid funds.
  • The hybrid funds have been classified into arbitrage, equity savings, balanced hybrid and dynamic/multi asset collection funds.

Therefore these are some of the important changes that have been introduced by the SEBI in regards to mutual funds.

About the Author

Mutual fund investment offers a wide range of investment funds such as Equity Funds, Debt Funds, Income Funds & ELSS Funds to meet your financial goals.

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Author: Raghav Mehera

Raghav Mehera

Flag of India

Member since: Apr 19, 2017
Published articles: 10

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