New Delhi: Securities and Exchange Board of India (Sebi) on Thursday released a revamped framework for classification of mutual fund schemes introducing Life Cycle Funds.
In an attempt to enhance uniformity and protect the investors’ interests, the Markets regulator stopped the Solution Oriented Schemes category and tightened disclosure and overlap norms.
Sebi’s new framework is in synch with the evolving mutual fund landscape and emerging opportunities across asset classes. The market regulator introduced the new rules to ensure “true-to-label” positioning and curbing exaggerated return claims in scheme names.
The Sebi has broadly classified schemes into five categories:
- Equity
- Debt
- Hybrid
- Life cycle and other schemes
- Fund of Fund Schemes and Passive Schemes such as Index Funds or ETFs (exchange traded funds)
“For easy identification by investors, in order to bring uniformity in names of schemes for a particular category across mutual funds and to ensure that schemes remain ‘true to-label’, the scheme name shall be the same as the scheme category,” Sebi said.
“Words/ phrases that highlight/ emphasize only the return aspect of the scheme shall not be used in the name of the scheme,” the Sebi circular read.
Commenting on Sebi’s new classification of rules, Nikunj Saraf, CEO at Choice Wealth, said the framework is good and would simplify an industry that had become increasingly complex for retail investors.
“By clearly defining categories across equity, debt, hybrid and solution-oriented funds and setting uniform asset allocation boundaries, the regulator is ensuring that schemes truly reflect what they claim to be. This reduces overlap, improves comparability and brings much-needed transparency to product positioning,” he added.
The Sebi circular mentioned that Solution Oriented Schemes category has been discontinued. Fresh subscriptions wont’ be allowed under under this category and they would be merged with other schemes.
The foreign securities will not be treated as a separate asset class, Sebi furthe stated.
What are Life Cycle Funds
Sebi has launched Life Cycle Funds as open-ended schemes following glide path strategy based investing across various asset classes i.e. Equity, Debt, InvITs, ETCDs, Gold & Silver. Type of scheme – An open ended fund with attributes of pre-determined maturity and glide path for goal based investing.
“Life Cycle Funds can be structured across different target maturities ranging from 5 years to 30 years. This allows investors to choose a fund aligned to their retirement horizon,” Niranjan Avasthi, Senior Vice President and Head of Product, Marketing, and Digital at Edelweiss Mutual Fund, posted on X.
The Sebi rules mention that investors of Index Funds and ETFs are required to have at least 95 per cent of total assets invested in securities of the index being replicated or tracked. These will be open-ended schemes tracking a specific index.
Fund of Funds (FoFs)
Investors, whether domestic or overseas, are mandated invest a minimum of 95 per cent of their assets in the underlying funds.
With PTI inputs