Kolkata: Capital market regulator Sebi has published a circular on “Categorization and Rationalization of Mutual Fund Schemes”, which, among other measures, has stipulated an immediate closure of all solution-oriented schemes such as children’s funds and retirement funds. The entire category has been eliminated and the regulator has said that AMCs have to immediately stop accepting any investment in all of these schemes.
Schemes discontinued to be merged with other schemes
The circular of Sebi titled “Categorization and Rationalization of Mutual Fund Schemes” states that solution-oriented schemes are being discontinued. All such schemes have been terminated from Feb 26. “Solutions-oriented scheme category is being discontinued w.e.f the date of the circular. Existing schemes in this category shall stop all subscriptions with immediate effect. Such schemes shall be merged with any other scheme having similar asset allocation and risk profile with prior approval from SEBI,” the circular said.
All investors of SBI Children’s Fund, ICICI Prudential Children’s Fund and HDFC Children’s Fund and other similar funds must take note. The prominent retirement funds include HDFC Retirement Savings Fund, ICICI Prudential Retirement Fund, Nippon India Retirement Fund and Tata Retirement Savings Fund.
AMCs can offer both value and contra funds
Earlier, AMCs had to choose either value or contra funds to offer. They could not offer both. The logic was that they were lookalike funds and there was a chance of portfolio overlap. Both these funds select undervalued but promising stocks to invest stocks. Contra funds targetted out-of-favour, underperforming assets and value funds select scrips with low valuation.
“Mutual Funds shall be permitted to offer both Value and Contra funds subject to the condition that scheme portfolio overlap between the two schemes shall not be more than 50%,” the new circular says. Therefore, an AMC offering both have to keep the overlap within the 50% limit.
What are Life Cycle Funds
This is a new addition in the mutual world domain by Sebi. A Life Cycle fund has been defined as an open-ended fund with a target date maturity. It will have a glide path investing in a mix of equity, debt, InvITs, gold ETFs, silver ETFs and exchange traded currency derivatives. The tenure will vary from a minimum of five years and a maximum one of 30 years. These might have a higher exit load of 3% which has been fixed to “inculcate financial discipline”.
13 types of equity schemes
In the new circular, Sebi has listed 13 types of equity-oriented schemes. Earlier this number was 11. The circular has named the following:
Multi Cap fund: Minimum 25% of total assets in large, mid and small-cap companies each
Large-cap fund: Minimum 80% of total assets in equity and equity-related instruments of large-cap companies
Large & Mid Cap Fund: Minimum 35% in large-cap companies and minimum 35% in mid-cap stocks
Mid Cap fund: Minimum 65% in mid-cap companies
Small Cap fund: Minimum 65% in small cap companies
Flexi-cap fund: Minimum 65% in equity
Dividend Yield fund: Predominantly in dividend-yielding stocks, minimum 80% of total assets in equity
Value fund: To follow a value investment strategy and put minimum 80% of total assets in equity
Contra fund: Follow a contrarian investment strategy and put minimum 80% of assets in equity and related instruments
Focused fund: Invest in maximum 30 stocks and minimum 80% of total assets in equity
Sectoral fund: Minimum 80% of total assets in equity and equity-related instruments of a single sector
Thematic fund: Minimum 80% of total assets in equity and equity-related instruments of a particular theme. Can be a mix of two or more sectors
ELSS-Tax Saver fund: Minimum 80% of total assets in equity
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