The date of February 26 brought a big turning point for mutual fund investors. Market regulator Securities and Exchange Board of India (SEBI) issued a circular changing the entire structure of categorization of mutual fund schemes. This decision will have a direct impact on lakhs of investors who were investing money in special schemes for children’s education, retirement and long-term goals.
SEBI has decided to completely eliminate the solution oriented category. This category included special schemes designed for goals like children’s education and retirement. Now these schemes will not be able to accept fresh investments and will be merged with other schemes with similar risk profile. Life cycle funds will be introduced in their place, which will automatically increase or decrease the risk of their portfolio as per the age and goals of the investor. As the investment approaches maturity, the risk will also reduce.
Strict investment limit for equity funds
SEBI has also tightened investment limits for equity schemes. Multi cap funds will now be required to invest at least 75% of their total assets in equities. Also, minimum investment of 25-25% in large, mid and small caps will be required. Large cap funds must invest at least 80% of their total assets in large-cap companies. At the same time, for large and mid cap schemes, at least 35-35% allocation in both the categories has been made mandatory.
50% limit on portfolio overlap
Often investors invest in two schemes of the same fund house, but the shares of both are almost equal. Now SEBI has set a limit of 50% on this overlap. Fund houses will get three years to reduce it. Every month they will have to make the overlap data public on their website.
Changes in debt and hybrid funds also
The rules for debt and hybrid funds have also been clarified. In special circumstances, debt fund managers can reduce the portfolio tenure, but will have to give a written explanation to the trustees. Hybrid funds will now get more flexibility to invest in InvITs, Gold and Silver ETFs.
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