MF Reclassification

Why the MF reclassification can actually deliver resultsimage1.pngRecently SEBI had stipulated that all mutual fund schemes be reclassified based on an acceptable formula. In tune with that, SEBI had identified 34 total segments for classification. Has this SEBI regulation really helped in reducing the number of MF schemes in India? Let us look at the top schemes by AUM

Schemes too many

A quick look at the 6 largest Mutual Fund AMCs in India indicates that post the merger of schemes, the number of schemes are above 34 in all the cases. In fact, even after the merger, Reliance AMC continues to have a whopping 54 schemes active. While AMCs have rationalized to some extent, the number of schemes is still above the maximum stipulated 34. That is because the current classification mechanism still leaves ample room for interpretation. This has enabled AMCs to latch on to the loopholes and hold the number of schemes at a much higher level.

Too big a template

The problem is with the template. SEBI stipulates 16 categories in debt, 10 in equity, 8 in hybrid and 2 in solution based funds. While the need for so many categories is still suspect, the whole thing needs to be looked at from the perspective of the retail investors. The differentiation must add value to the small investor and help them grasp the differentiation of these classes.

Step in the right direction

However, this is a step in the right direction. Now, at least, there is a clear class demarcated by SEBI and also an explanation of what mid-cap and small cap funds mean. The effort should be to gradually reduce the number of mutual fund classes so that the retail investor is actually able to see the difference, grasp the benefits and invest accordingly. Towards that direction, this is a small but meaningful step by SEBI! ©

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