Context:

• Mutual fund houses have been making changes to their schemes following a directive from regulator Securities Exchange Board of India (SEBI) last year. Here is what you need to know:

What is the SEBI directive all about?

• Last year, SEBI had issued a directive regarding categorisation and rationalisation of mutual fund schemes.

It defined five categories in which all schemes can be classified:

• equity schemes,
• debt schemes,
• hybrid schemes (which invest in a mix of equity and debt), solution-oriented schemes (such as for retirement) and
• other schemes (such as index funds and exchange-traded funds).
• Further, it defined sub-categories like large caps, large and mid caps and small caps.
• It also defined the individual characteristics of each of the scheme types and what the portfolio allocation should be. For instance, a large cap fund should invest at least 80% in large cap shares and a mid-cap fund should invest at least 65% in mid cap shares.

Why did SEBI issue the directive now?

• The number of mutual fund schemes on offer has become large and some of the offerings have been similar without any differentiation, often creating confusion in the minds of investors. The directive is aimed at bringing uniformity to the schemes and enabling accurate comparisons.

What are fund houses doing now?

• Mutual fund companies have been making changes to their schemes to comply with the directive. Across the industry, firms are either renaming their schemes, changing their categories or merging the schemes with other similar schemes.

Source:TH