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Learn About the Different Categories of Mutual Fund Schemes

Learn About the Different Categories of Mutual Fund Schemes



Mutual funds are one of the most straightforward and transparent investment avenues in these times. But with so many mutual fund schemes going around with different names, it becomes a big task for the lay investor to identify a suitable scheme. To bridge this gap, SEBI released a Circular in October 2017, which contained guidelines on categorisation and mutual fund schemes. In the Circular, SEBI has made 5 broad categories and sub-categories within each category. This article explains the different types of mutual fund schemes and the essential characteristics/conditions of each category.


Category # 1: Equity schemes:


S. No.

Category

Scheme characteristics/minimum conditions

1

Multi-Cap Fund

Invest across large-cap, mid-cap, small-cap stocks

Min. equity component – 65%

2

Large Cap Fund

Predominantly invest in large-cap stocks

Min. equity component – 80%

3

Large and Mid-Cap Fund

Invest in both large-cap and mid-cap stocks

Min. equity component (large-cap stocks) – 35%

Min. equity component (mid-cap stocks) – 35%

4

Mid Cap Fund

Predominantly invest in mid-cap stocks

Min. equity component (mid-cap stocks) – 65%

5

Small Cap Fund

Predominantly invest in small-cap stocks

Min. equity component (small-cap stocks) – 65%

6

Dividend Yield Fund

Predominantly invest in dividend-yielding stocks

Min. equity component – 65%

7

Value Fund

The scheme should follow a value investment strategy

Min. equity component – 65%

8

Contra Fund

The scheme should follow a contrarian investment strategy.


Min. equity component – 65%

9

Focussed Fund

Maximum 30 stocks

Min. equity component – 65%AMC to mention where the scheme intends to focus, viz.,

Multi-cap, large-cap, mid-cap, small-cap)

10

Sectoral/Thematic Fund

AMC to clearly mention the sector/theme that the scheme shall focus on


Min. equity component (for stocks belonging to that sector/theme) – 80%

11

Equity Linked Savings Schemes (ELSS)

The statutory lock-in period of 3 years


Min. equity component – 80% (per Equity Linked Saving Scheme, 2005, as notified by the Ministry of Finance)


Note: Mutual Funds will be permitted to offer either Value fund or Contra fund


Category # 2: Debt schemes:


S. No.

Category

Scheme characteristics/minimum conditions

1

Overnight Fund

Invest in overnight securities – Maturity of 1 day

2

Liquid Fund

Invest in debt and money market instruments – Maturity of up to 91 days

3

Ultra-short Duration Fund

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 6 months

4

Low Duration Fund

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 6 – 12 months

5

Money Market Fund

Invest in Money Market instruments – Maturity up to 1 year

6

Short Duration Fund

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 1-3 years

7

Medium Duration Fund

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 3 – 4 years

8

Medium to Long Duration Fund

Invest in Debt & Money Market instruments – Macaulay duration of the portfolio to be between 4-7 years

9

Long Duration Fund

Investin Debt & Money Market instruments – Macaulay duration of the portfolio to be more than 7 years

10

Dynamic Bond

Investment across duration

11

Corporate Bond Fund

Minimum 80% investment in corporate bonds (only in highest rated instruments

12

Credit Risk Fund

Minimum 65% investment in corporate bonds (below highest rated instruments)

13

Banking and PSU Fund

Minimum 80% investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions

14

Gilt Fund

Minimum 80% investment in Government Securities (across maturity)

15

Gilt Fund with 10-year constant duration

Minimum 80% investment in Government Securities (so that the Macaulay duration of the portfolio is equal to 10 years)




Note: For fund categories mentioned in pts. 3 to 9 above, the AMC has to mention the page number of the offer document where the concept of “Macaulay duration” is explained.


Category # 3: Hybrid Schemes

S. No.

Category

Scheme characteristics/minimum conditions

1

Conservative Hybrid Fund

Minimum equity component – Between 10% and 25%


Minimum debt component – Between 75% and 90%

2a

Balanced Hybrid Fund

Minimum equity component – Between 40% and 60%

Minimum debt component – Between 40% and 60%

The AMC cannot do any arbitrage in this scheme

2b

Aggressive Hybrid Fund

Minimum equity component – Between 65% and 80%


Minimum debt component – Between 20% and 35%

3

Dynamic Asset Allocation (or


Balanced Advantage)

Invest in equity or debt – AMC to manage it dynamically

4

Multi-Asset Allocation

Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes


Note: AMC cannot offer foreign securities as a foreign asset class

5

Arbitrage Fund

The scheme should follow an arbitrage strategy.


Minimum equity component – 65%

6

Equity Savings

Minimum equity component – 65%

Minimum debt component – 10%

AMC to state minimum hedged & unhedged in the Scheme Information Document (SID)

AMC to state Asset Allocation under defensive considerations in the Offer Document


Note: Mutual Funds can offer either an Aggressive Hybrid fund or a Balanced fund


Category # 4: Solution-Oriented Schemes:

S. No.

Category

Scheme characteristics/minimum conditions

1

Retirement Fund

Lock-in: At least 5 years or till retirement age, whichever is earlier

2

Children’s Fund

Lock-in: At least 5 years or till the child attains the age of majority, whichever is earlier


Category # 5: Other Schemes:


S. No.

Category

Scheme characteristics/minimum conditions

1

Index Funds/ Exchange Traded Funds

Minimum 95% investment in securities of a particular index (which is being replicated/ tracked)


AMC to mention the name of the index

2

Fund of Funds (Overseas/ Domestic)

Minimum 95% investment in the underlying fund


AMC to mention the name of the underlying fund


Conclusion


The above categorisation norms are beneficial in standardising the mutual fund offerings across AMCs. As an investor, you should look into your financial goals and choose the right category of mutual funds for your investment needs.


 

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