These are changing times for mutual funds. In October 2017, SEBI came up with two important rules:
one, it defined the categories of funds AMCs are allowed to hold and under each category the broad
universe and proportion of instruments they are required to invest in. This was mandated across
equity, debt and multi-asset categories. Further, SEBI also stipulated that a fund house could have
only one fund (barring a few such as thematic, index, etc) in each category
The upshot of this is that fund houses are currently in the process of fitting their funds into each of
these categories. With this exercise:
- Some funds will see no change in strategy or category – for example, a large-cap fund being
slotted into the large-cap category.
- Some funds will see a change in their category without necessarily undergoing a change in strategy
– for example, a high-quality income fund becoming a corporate bond fund
- Some funds will see a change in both category and strategy.
We have always had a process to define categories based on fund strategies and portfolios. This
ensured that we categorised them appropriately (well before the SEBI mandate) and compared them
with the right set of peers. We also ensured that the Select Funds comprised funds with a unique and
clearly defined strategy and avoid, wherever possible, multiple funds that follow like-styles.
The bulk of the Select Funds list, therefore, tick the first two points mentioned above. So the good
news is that if you hold funds recommended by us, these changes would have minimal to no
disruption to your portfolio. Outside of that, there is quite a bit of task of understanding what
changed and how to deal with it.
We would also like to caution you that the next 6-8 quarters will be challenging if you try to choose
funds or exit them on your own without knowing the background of the strategy change. Our research
methodology will continue to ensure that the changes are appropriately dealt with when picking funds
for our list.
As a FundsIndia investor, you would have received an email listing the changes this quarter and the reasoning behind these changes. You can view the updated list by logging into your FundsIndia account, or by accessing www.fundsindia.com/select-funds (you will need to log in to view the full list).
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