Wednesday , 26 September 2018
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Do not be confused in mutual fund investing

 Tensing Rodrigues*

That’s exactly the point. The whole confusion you may be experiencing lately on the MF scene is meant to end confusion. Called ‘Categorization and Rationalization of Mutual Fund Schemes’ by SEBI, the attempt is to make MF investing easier for the aam investor who does not have a whole day to figure out which scheme to invest in. Over the last twenty or thirty years the MF market place had become worse than an aphrodisiac shop with products having exotic names suggestive of even more exotic results – in reality, almost the same potion in different bottles.

Now that should come to an end. Yes, initially you will have to bear a little of nuisance, as your investment in ABC scheme is  moved to XYZ scheme and that in BCD scheme is moved to YZA scheme. Your investment in two schemes may also be merged in one. Have a little patience. You have nothing to lose except for a good deal of headache of tracking a page full of schemes. Read carefully your new scheme statements sent to you by the AMCs. And know for yourself where you are invested now and what risk-return profile your investment carries. To make that easy, let us today look at the new categorization for the equity schemes.

The equity schemes have been broadly classified as, Multi Cap Fund: An open ended equity scheme investing across large cap, mid cap and small cap stocks. Minimum investment in equity and equity related instruments is 65 per cent of total assets.

Large Cap Fund: An open ended equity scheme predominantly investing in large cap stocks. Minimum investment in equity and equity related instruments of large cap companies is 80 per cent of total assets. The investment is in large cap companies from 1st to 100th in terms of full market capitalization.

Mid Cap Fund: An open ended equity scheme predominantly investing in mid cap stocks. Minimum investment in equity and equity related instruments of mid cap companies is 65 per cent of total assets. Large cap companies from 101st to 250th company in terms of full market capitalization.

Large and Mid Cap Fund: An open ended equity scheme investing in both large cap and mid cap stocks. Minimum investment in equity and equity related instruments of large cap companies,  35 per cent of the total assets.

Small Cap Fund:  An open ended equity scheme predominantly investing in small cap stocks. Minimum investment in equity and equity related instruments of small cap companies, 65 per cent of total assets. Small cap companies, 251st company onwards in terms of full market capitalization.

Dividend Yield Fund: An open ended equity scheme predominantly investing in dividend yielding stocks. Minimum investment in equity – 65 per cent of total assets.

Value Fund: An open ended equity scheme following a value investment strategy. Minimum investment in equity & equity related instruments – 65 per cent of total assets.

Contra Fund: An open ended equity scheme following a contrarian investment strategy. Minimum investment in equity & equity related instruments – 65 per cent of total assets.

Mutual Funds are permitted to offer either value or contra fund, not both.

Focused Fund:  An open ended equity scheme invested in maximum of 30 stocks categorically specifying where the scheme intends to focus. Minimum investment in equity & equity related instruments – 65 per cent of the  total assets.

Sectoral/Thematic Fund:  An open ended equity scheme investing in a specific sector or following a specific theme, categorically specifying the sector or theme. Minimum investment in equity & equity related instruments – 80 per cent of total assets.

ELSS – An open ended equity linked saving scheme with a statutory lock in of three years and tax benefit. Minimum investment in equity & equity related instruments – 80 per cent of total assets. (In accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance.)

Very important from your point of view: Only one scheme per category is permitted, except (a) Index Funds/ ETFs replicating/ tracking different indices (b) Fund of Funds having different underlying schemes and (c) Sectoral /thematic funds investing in different sectors/ themes.

*The author is an investment consultant. Readers can send their comments and queries to investment.ideas.shop@gmail.com

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