Uniformity in Mutual Fund Schemes Definition as SEBI Categorizes 5 Mutual Funds

In a bid to fair play for bringing uniformity across Mutual Fund schemes so as to breakthrough with all the MF clutter going on since past years have already instilled a lot of confusion among distributors and investors while investing in their mutual fund schemes. To kick-out such confusion and for ensuring transparency in the entire mutual fund industry, the market regulator i.e. Securities and Exchange Board of India(SEBI) has released a circular which brief up about the categories of MF schemes, their characteristics and uniform description for each category. It has also firmly placed five broad categories of mutual fund schemes. As per the circular issued by SEBI, the clear-cut definitions has been set for every scheme categories.

In order to bring forward the standardized practice across mutual funds, SEBI has widely categorized the mutual funds into the following groups:

  1. Equity Funds
  2. Debt Funds
  3. Hybrid Fund
  4. Solution Oriented
  5. Other Schemes

Let’s check out each of the above schemes and their respective portfolio allocation:

Equity Funds Category

Equity fundsPortfolio Allocation
Multi cap fundExposure of atleast 65% across market capitalization
Large cap fundExposure of atleast 80% in large cap stocks
Large and mid cap fundExposure of alteast 35% in large cap and 35% in mid-cap
Mid cap fundExposure of 65% in mid-cap stocks
Small cap fundExposure of 65% in small-cap stocks
Dividend yield fundExposure of 65% in dividend yielding stocks
Value fund and contra fundExposure of 65% stocks in value theme or contra strategy respectively
Focussed fundExposure of 65% on focussed strategies
Sectoral/thematic fundExposure of 80% in a particular sector and thematic sector
ELSSExposure of 80% on equity instruments
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Debt Funds Category

Debt fundsPortfolio Allocation
Overnight fundExposure in commercial papers with maturity of 1 day
Liquid Fund Upto 91 days of maturity
Ultra short term fundBetween 3 months and 6 months of maturity
Low duration fundBetween 6 months and 12 months of maturity
Money market fundUp to 1 years of maturity (mixed portfolio)
Short duration fund Between 1 and 3 years of maturity
Medium to long duration fund
4-7 years of maturity
Dynamic bondInvestment across tenure
Corporate bond fund80% in high rated securities
Credit risk fund65% assets in low rated securities
Banking and PSU fund
80% in securities issued by banks, PSUs and PFIs
Gilt fund upto 80% in G-secs across maturity
Gilt fund with 10 year constant durationuto 80% in G secs with average maturity of 10 years
Floater fund upto 65% in floating rate securities

Hybrid Funds Category

Debt fundsPortfolio Allocation
Overnight fundExposure in commercial papers with maturity of 1 day
Liquid Fund Upto 91 days of maturity
Ultra short term fundBetween 3 months and 6 months of maturity
Low duration fundBetween 6 months and 12 months of maturity
Money market fundUp to 1 years of maturity (mixed portfolio)
Short duration fund Between 1 and 3 years of maturity
Medium to long duration fund
4-7 years of maturity
Dynamic bondInvestment across tenure
Corporate bond fund80% in high rated securities
Credit risk fund65% assets in low rated securities
Banking and PSU fund
80% in securities issued by banks, PSUs and PFIs
Gilt fund upto 80% in G-secs across maturity
Gilt fund with 10 year constant durationuto 80% in G secs with average maturity of 10 years
Floater fund upto 65% in floating rate securities
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Solution Oriented Category

Solution OrientedPortfolio Allocation
Retirement fundThe scheme composition having atleast 5 years of lock-in period till retirement age whichever is earlier
Children fundThe scheme composition having atleast 5 years or until the child reaches 18 years of age whichever is earlier

Other Schemes Category

Other schemesPortfolio Allocation
Index funds/ETFs95% in securities of a sepcific index
FOFs overseas/domestic95% in the underlying scheme

Definition of Large Cap, Mid-Cap and Small Cap in India

SEBI has defined large cap, mid cap and small cap in the following ways:

  • Large-cap: 1st -100th company in terms of full market capitalization
  • Mid-Cap: 101st -250th company in terms of full market capitalization
  • Small-Cap: 251st company onwards in terms of full market capitalization

In accordance with the circular released by SEBI, mutual funds would have to follow the list of stocks prepared by AMFI(Association of Mutual Funds in India) within this respect and AMFI would need to follow the below-mentioned points while preparing the list:

  • If a stock is listed on more than one well-recognized stock exchange, the calculation shall be undertaken based on the average of full market capitalization of the stock on all such exchanges.
  • If the listing of a stock happens to be only on one of the recognized stock exchanges, the consideration shall be taken on the basis of the full market capitalization of that stock on such an exchange.
  • The uploading of the list shall be undertaken on the AMFI website and the same shall be updated every six months depending on the data as on the end of June and December of each year. The availability of data shall persist on the AMFI website within 5 calendar days from the end of the 6 months time period.
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Relative to any updation in the list, the rebalancing of mutual fund portfolios(if required) should be in accordance with the updated list, within a time frame of one month.

To sum up, mutual funds have clearly been distinguished in terms of asset allocation, investment strategy etc. which conveniently going to be helpful for every investor for making well-informed decisions about investing in a particular scheme.

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