Mutual Fund Scheme categorisation is in the news. What is it and how does it affect you as an investor?

As per the mandate from SEBI (market regulator), each fund house must now classify existing schemes under a set of categories.

SEBI has introduced this in order to streamline the number of schemes available in the market and help investors understand the objectives of each fund better before investing in them.

What should you do?  
To begin with, nothing much, apart from talk to your financial advisor for clarity is what you should do.

You don’t need to react to everything. As per rules, the AMC has to provide a one-month exit window to investors, in case the investor does not agree with the changes.

When you get a notice from the AMC informing you about the exit window, it doesn’t mean that your fund mandate has changed drastically and there is a compulsion to exit.

Things to consider
If the fund continues with the same name with a similar but more well-defined mandate, it is better for you and you should stay put.

If the fund is undergoing a change of name with a marginally different mandate, there may be no compelling reason to exit.

If the fund is being repositioned with a change of name and mandate, you give it a closer and detailed thought, but even here there is no compulsion to exit.

You should exit a fund and re-allocate only when there is a sustained underperformance or a drastic change, called change in fundamental attribute, if it does not suit you.

The Bottom Line
In such matters, it’s best to consult your investment advisor before you jump to any conclusions. Your adviser will be able to tell you how much the mandate of the fund has been influenced by the categorisation and whether you should react to it.

In most cases, a change of name doesn’t mean the nature of your fund has undergone any drastic change.

What you need to concentrate on is – is my overall portfolio is serving my goal of investing in equity or not? With the changes will I be able to achieve required rate of returns or not. Finally, quality of the fund house, quality of the fund management team and money invested through a financial advisor goes through a better experience.

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