Is it time to renovate your mutual fund portfolio?

Indian mutual fund industry is quite expansive with a huge basket of schemes for investment. Previously, the fund houses used to have multiple schemes under the same category with different attractive names. Many a times, the name has misled the investors about the underlying strategy of that scheme. With all this mess it was very difficult for an investor to choose a schemes for investment.

Bearing this in mind, market regulator SEBI came up with a solution. SEBI in a circular to various mutual fund houses asked for categorisation and reclassification of the schemes. This system is meant to bring uniformity in the schemes which further facilitates a fair comparison between the schemes listed by various fund houses. Based on this circular, the categories have been redefined by SEBI. To adhere with this, AMC’s have been forced to realign their entire basket of offerings and have to decide which schemes to keep, which to merge, and which to wind-off or change the fundamental attributes of. With this change the portfolios of individual investors are expected to be impacted, so investors need to check all these changes keenly.

According to the new classification, all open-ended schemes will be under broad categories like equity, debt, hybrid, solution oriented and others which have further sub-categorised in 36 asset classes including 10 equity, 16 debt, 6 hybrid schemes, 2 solution-oriented and 2 others. A fund house can have only one scheme under each category. This is expected to simplify the choice for the investors, but post merger or consolidation of the schemes, investors need to look at the key aspects of the schemes and need to realign them with the investment objective.

Moreover, SEBI has also defined the criteria for the each category constituents and their weightages to enhance the transparency in the investment style. Previously, the fund managers used to have a mix of Large-cap, Mid-cap and Small-cap stocks in a way to reap more returns therefore many a times investors do not get what they intended to buy. With the changing dynamics, the fund houses now have to follow the investment styles defined by SEBI strictly, owing to which investor need to revamp their portfolio according to their risk and return expectations.

The last but not the least, the name games played by the fund houses. With the name changes, if the fundamental attributes are getting changed, then investors need to observe them closely. Post all the changes in the schemes, investors are advised to check, rebalance and realign their portfolios to stick to their investment objectives as the performance, fund management styles and holdings of the schemes are expected to change in the coming days. So its better to have a close look at all these and renovate your portfolio according to your investment goals.