The Maze Of Mutual Funds

Market regulator SEBI’s plan to standardise and classify mutual funds under different categories will allow investors to take informed decisions.

- Saravana Kumar

The mutual fund industry has grown over the years. However, the industry still remains a maze for the novice investor, given the large number of schemes and absence of standardisation in the offerings. In October 2017, the Securities and Exchange Board of India (SEBI) released a circular on ‘Categorisation and Rationalisation of Mutual Fund Schemes’ to help investors take informed decisions.

The market regulator is seeking to bring uniformity in the functioning of asset management companies (AMCs) and standardising attributes of mutual fund schemes across specific categories. It is indeed difficult for the investor to choose the right scheme for investing from the large pool of available schemes. Hence, the schemes offered by mutual funds need to be different from each other in terms of core characteristics like investment objectives and asset allocations. This will help mutual fund investors to examine a mutual fund scheme before taking a decision to invest in it.

We believe that SEBI has taken a positive step, and this action will act as a catalyst for the growth of the industry. Mutual fund schemes have been broadly classified in the following groups:

Equity Schemes: Invest in equity and equity-related instruments 

Debt Schemes: Invest in debt and money market instruments 

Hybrid Schemes: Invest in both equity and debt instruments 

Solution Oriented Schemes: Goal-based solutions for retirement planning and for creating a children’s fund. SEBI has introduced a lock-in period in case of Solution Oriented Schemes.

Other Schemes: Includes schemes such as Exchange Traded Fund, Index Funds, and Fund of Funds.