Are you wondering why you are getting name change and category change emails from your fund house? Last month, based on the instructions of the Securities and Exchange Board of India (Sebi), mutual fund houses recategorised their schemes. What does mutual fund reclassification mean for you and how does it impact you?
Not all mutual funds have changed. “Funds that have seen changes can be classified into three levels — funds that simply changed the name; funds that have changed the category; and funds that have wound up and merged with another fund,” said Srikanth Meenakshi, founder and chief executive officer, FundsIndia.com.
According to Meenakshi, of all the funds that have seen changes, around 50%-60% have only changed names. “For instance, ICICI Prudential Balanced Fund and is now ICICI Prudential Equity and Debt Fund. The characteristic remains the same,” he said.
Around 20%-30% of the mutual funds have seen a change in investment style. The remaining funds have either wound up their schemes and merged with another scheme. “The third type of change is in 5%-10% funds—you have scheme A and scheme B, where scheme B dies and merges with scheme A. It doesn’t have a big impact on scheme A, but there is a huge impact on scheme B,” said Meenakshi.
What should you do?
If you are a mutual fund investor, you have to firstly take a look at your investment portfolio to see what is happening with your holdings. You need to go through all the schemes that you have. If there is no change to your mutual fund scheme, then you don’t have to do anything.
However, it is important to be aware of any changes. Do take a look again and if you are wondering where to find the information, go online. From an investor point of view, the most pertinent change is the second and third type of change — where the scheme has either changed the category or has got merged with another one. “The funds that have had category changes and have been wound up and merged with larger scheme will require closer scrutiny. Here it varies from one fund to another. There is no blanket advisory possible at this point of time,” said Meenakshi. You have to see, especially on the debt side, whether the fund has gone from, say, liquid fund to ultra-short term. “In case you see a major change in the objective of the fund then you should take a relook. In the debt fund space, there hasn’t been much of a change,” said Lakshmi Iyer, chief investment officer — debt and head products, Kotak Mahindra Asset Management Co. Ltd.
Next, you have to check your overall portfolio and see whether you want to continue to remain in the same category. That assessment has to be done. The category changes are very diverse. Sometimes the risk has gone down, sometimes it has gone up. It has to be scrutinised on a case-by-case basis.
