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What you think, Should you invest in the new mutual fund's categories introduced by SEBI?
Which of these categories are an option they should explore further and which one of them is good to give a miss?
Mutual funds re-categorization by the Securities and Exchange Board of India (SEBI) is considered to be a step in the right direction. One of the good aspects of this re-categorization is that the market regulator has clearly defined mutual funds categories. This makes investors easier to understand the risk-return characteristics of a specific scheme they wish to invest.
However, within this re-categorization, there is one aspect which may confuse investors. SEBI has introduced some new categories which were not there. In equity mutual funds now you have large and mid-cap category while in debt you have low duration fund or overnight money market funds. Investors may find it difficult to decide how these categories fit in their objective. Which of these categories are an option they should explore further and which one of them is good to give a miss?
In equity mutual funds you have now large-cap, large and midcap, multi-cap, midcap and smallcap categories along with sector and equity-linked savings schemes (ELSS) funds. SEBI has clearly defined where these categories of mutual funds scheme can invest. A large-cap category will invest in top 100 stock stocks as per market capitalization. Similarly, a midcap category will invest in 101-250th stocks while the smallcap category will be invested in 251st company onwards as per market capitalization.
Before re-categorization, we had large-cap, multi-cap and mid-cap categories for investors. A large-cap category predominantly invested in large-cap stocks but the large-cap universe was not well defined. A mutual fund company could include stocks beyond top 100 stocks. In a midcap mutual fund scheme a smallcap stock could find a place or vice versa. Thus the decision of involving a stock in a particular category was with asset management companies (AMCs) and that’s where it made all the difference. To enhance a scheme returns companies use to consider exposure in such stocks beyond the mandate of the scheme.
source-www.moneycontrol.com
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