New Mutual Fund Schemes Categorization – What Investors should know?

Mutual Fund Schemes Categorization – What Investors should knowMutual Fund Schemes Categorization – What Investors should know?

Last Friday, SEBI has issued new reforms on categorization of Mutual Fund Schemes and restricted such categorization to only 5. These SEBI reforms would be shaking up Mutual Fund Industry who are floating various mutual fund schemes in the same category with small changes. Currently mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes are running and out of which 317 are open ended schemes which would impact. What are these new reforms / guidelines from SEBI about mutual fund schemes? What happens to existing Mutual Fund Schemes in the same category. What an investors should know about New Mutual Fund Schemes Categorization? What are the 5 Baskets where SEBI is asking AMCs to classify the mutual fund schemes?

Also Read: How to replace your salary by investing small amounts in Mutual Fund Schemes?

What are SEBI New Reforms on Mutual Fund Schemes?

1) SEBI issued new norms / guidelines on mutual fund schemes and all such schemes should be categorized into 5 baskets only.

2) 5 Baskets are Equity, Debt, hybrid, solution oriented and other mutual fund schemes.

3) Mutual Fund Houses cannot launch similar schemes in same theme. Means, there would not be any duplicate plans which AMC can lauch or run.

4) Sebi has said the one-scheme-per-category rule will not be applicable to exchange-traded funds (ETFs) tracking different indices; fund-of-funds having different underlying schemes; and sectoral and thematic funds investing in different sectors.

5) Mutual Fund Houses (AMC) have to submit their proposal of their existing schemes along with categorization of the schemes within next 2 months and should implement new reforms in the next 3 months without fail.

6) SEBI provided guidelines about the classification of largecap, midcap and small schemes. First 100 companies in market capitalization are termed as large cap, First 101 to 250 companies are termed as mid-cap companies and after 250+ market capitalization are termed as smallcap companies. Association of Mutual Funds of India (AMFI) would update this data twice on their website which would be basis where mutual fund schemes can invest based on their investment objectives. This would apply to all existing open ended mutual fund schemes which got SEBI clearance, however yet to be launched and for all schemes where draft documents submitted which are pending with SEBI for approval.

Why SEBI feels new reforms required for mutual fund categorization?

SEBI feels that there are different schemes being launched by same MF house with small variations. Such categorization would clearly distinct in asset allocation and investment strategy. This would also bring uniformity among mutual fund schemes being launched by different mutual fund AMCs.

What are the 5 Baskets where Mutual Fund Scheme are Categorized now?

As per SEBI new reforms, mutual fund schemes has to be classified into 5 baskets. However SEBI was liberal in providing further sub classification in equity, debt and hybrid segment. Currently mutual fund industry is Rs 20 Lakh Crores where more than 830 Schemes and out of which 317 are open ended schemes which would impact. Here is how the new basket of mutual fund schemes look like:

Basket#1 – Equity Mutual Fund Schemes

This equity mutual fund schemes would comprise of the following schemes.

1) Multicap Fund

2) Largecap Fund

3) Large and midcap fund

4) Midcap fund

5) Smallcap fund

6) Dividend Yield Fund

7) Value Fund & Contra Fund

8) Focused Fund

9) Sectoral /Thematic Fund

10) Equity Linked Mutual Fund Schemes

Basket#2 – Debt Mutual Fund Schemes

This debt mutual fund schemes would comprise of the following schemes.

1) Overnight Fund – Investment in overnight securities having maturity of 1 day.

2) Liquid Mutual Funds

3) Ultra Short Term Funds

4) Low Duration Funds

5) Money Market Funds

6) Short Duration Funds

7) Medium Duration Funds

8) Medium to long duration funds

9) Long Duration Fund

10) Dynamic Fund

11) Corporate Bond Fund

12) Credit Risk Fund

13) Banking and PSU Fund

14) Gilt Fund

15) Gilt Fund with 10 year constant duration

16) Floater Fund

Basket#3 – Hybrid Schemes

This hybrid mutual fund schemes would comprise of the following schemes.

1) Conservative Hybrid Funds

2) Balanced Hybrid Fund & Aggressive Hybrid Funds

3) Dynamic Asset Allocation or Balanced Advantage Funds

4) Multi Asset Allocation Fund

5) Arbitrage Fund

6) Equity Savings

Basket#4 – Solution Oriented Schemes

This solution oriented mutual fund schemes would comprise of the following schemes.

1) Retirement Fund – Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier.

2) Children’s Fund – Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier.

Basket#5 – Other Schemes

Other mutual fund schemes would comprise of the following schemes.

1) Index Funds / ETFs

2) Funds of Funds (Overseas / Domestic)

What does Mutual Fund AMC’s need to do now?

As per SEBI new guidelines about categorization of mutual fund schemes, AMCs need to come back to SEBI with proposal about merger or wind-up (if merger is not possible) of schemes into these 5 baskets. Mutual Fund AMC is now allowed only one scheme in the provided basket and sub-basket classification. They need to classify all their equity mutual fund Schemes into sub basket of 10 schemes. They need to reclassify all their debt funds into 16 categories. For hybrid funds, they need to classify them into 6 and solution oriented into 2 sub classifications.

Also Read: Best Rated Mutual Fund Schemes in India

How does this impact Mutual Fund Investors?

You might be investing in several mutual fund schemes. However, once rationalization  / merging of mutual fund schemes happens, this would have some impact on your portfolio. If you are investing in 10 schemes, they might become 8. If you are investing in specific AMC schemes, in specific market capitalization, your scheme count can come down drastically. E.g. HDFC Top 200 and HDFC Equity Fund as an example would get reviewed and they can get merged. Second example could be Birla SL Frontline Equity, Birla SL Top 100 Fund and Birla SL Equity Fund may get reviewed and may get merged into 1-2 funds. These are just examples to make you understand and this does not mean they would really get merged. Investors need to wait and watch about the proposal of Mutual Fund AMCs to SEBI and once implemented, based on it you can review your mutual fund portfolio. However one need to keep an eye about the developments.

SEBI circular about MF reationalization can be downloaded at this link.

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New Mutual Fund Schemes Categorization – What Investors should know

Suresh KP


  • Rajesh

    Hello Suresh,

    I had invested in HDFC Balanced Direct-G which is merged and became HDFC Hybrid Equity Direct on June 1st 2018. My units were automatically sold and complete amount is added with units of HDFC Hybrid Equity Direct.

    HDFC Hybrid Equity Direct is showing as unrated. Should i continue investing in HDFC Hybrid Equity Direct.

    Please advise.


  • Avineet Prakash

    It is almost 6 months and I do not see any effect on Schemes, Any update on this will be helpful

    • Hi Avineet, I heard some changes being happening in recent times, however do not have full fledged info about these changes. Lets wait for some more time

  • Karthik GR

    Thanks for this informative article. I beleive, schemes with small assets size would get merged with the scheme that has large assets size in same categories and name it newly… Funds expense rate might vary in further. Let's see.

  • Hardik

    Thanks for sharing the info. During such times of changes in categories, do you think it is advisable to start a new SIP in any fund or should we wait? Also, is there any timeline till when it is expected for AMC to complete their categorization?

  • Saravana

    Very nice..informative article. Is it good to wait for the clarity from AMCs and till things are finalized and stucture, if I want to do SIP in mutual funds

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