“Change is the only constant thing in this world”
From “Mutual Funds are subject to market risk” to “Mutual Fund Sahi hai” there have been many changes in last few months.
Before we see the list of short listed mutual funds one can invest in this FY 2018-19, one should be aware of the changes which have taken place in last few months.
(Read till the end, you will not be disappointed :))
Changes due to ‘Categorisation and Rationalisation of Mutual Fund Schemes initiative’ of SEBI)
SEBI has specified 36 categories of mutual fund schemes in total. As per the new rules, the AMCs will not be allowed to offer two schemes under different names with identical investment mandates. One category of mutual fund will be permitted to sell only one mutual fund scheme. As a result of this mandate, the fund houses have now realigned their schemes and portfolios to classify them under the newly formed categories.
Changes in brief
Earlier, the mutual fund scheme names consisted of words like “opportunities”, “advantage” and “prudence” to make it look seemingly lucrative. However, the investor was unable to gauge the inherent risk while making an investment. After passing of the regulation, many scheme names have been changed in order to enhance existing disclosure.
Classification of Schemes
After the recategorization, SEBI has specified the entire universe of mutual funds to be classified under these 5 categories i.e. Equity, Debt, Hybrid, Solution oriented and others
Modification of scheme attributes
This includes the investment mandate, the benchmark and the investment strategy of each mutual fund scheme.
Changes in the Definitions
After implementation of the regulation, large-cap stocks would be the top 100 companies of the underlying benchmark in terms of full market capitalization. Mid-caps would be companies ranking from 101st to 250th and small-caps would be companies ranking from 251st onwards in terms of full market capitalization.
We note above, that almost everything has changed and the first thought is :
The past performance of many schemes are now irrelevant and so are the Mutual Fund Star ratings offered by various websites
Yes! You read it right, Star rating and Ranking for many schemes are now irrelevant as :
- To fall in line with SEBI mandate many schemes have been merged
- Fundamental Attributes have changed like some Midcap schemes are now Multicap and some of the Multicaps are now in Focused categories.
Generally, Mutual Fund Star rating and ranking should not be the criteria to Select the fund.
Schemes Sub categories & its characteristics
Equity Mutual Fund Schemes
|Multi cap||Min 65% in across Large, Mid & Small cap companies|
|Large cap||Min 80% in Large cap companies|
|Large & Mid cap||Min 35% in Large cap companies & Min 35% in Midcap companies|
|Mid cap||Min 65% in Mid cap companies|
|Small cap||Min 65% in Small cap companies|
|Dividend Yield||Min 65% in Equities investing predominantly in Dividend yield stocks|
|Value||Min 65% in Equities which should follow value strategy|
|Contra||Min 65% in Equities which should follow contrarian strategy|
|Focused||Min 65% in Equities (Maximum 30 stocks). Focus can be on large cap Multi cap, Midcap or Small cap|
|Sectoral||Min 80% in stocks of a particular sector|
|Thematic||Min 80% in stocks of a particular theme|
|ELSS (Tax Saving)||Min 80% in Equity and Equity related instrument|
Debt Mutual Fund Schemes
|Overnight||Investment in overnight securities having maturity of 1 day|
|Liquid||Maturity of up to 91 days only|
|Ultra Short Term||Macaulay duration of the portfolio is between 3 months ‐ 6 months|
|Low Duration||Macaulay duration of the portfolio is between 6 months‐ 12 months|
|Money Market||Maturity of up to 1 year|
|Short Duration||Macaulay duration of the portfolio is between 1 year – 3 years|
|Medium Duration||Macaulay duration of the portfolio is between 3 years – 4 years|
|Medium to Long Duration||Macaulay duration of the portfolio is between 4 years – 7 years|
|Long Duration Fund||Macaulay duration of the portfolio is greater than 7 years|
|Dynamic Bond||Investment across duration|
|Corporate Bond||Min 80% in invested in Corporate Bonds|
|Credit Risk||Min 65% in invested in Corporate Bonds below highest rated instruments|
|Banking & PSU||Min 80% in invested in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions|
|GILT||Min 80% in invested in Gsecs across maturity|
|Gilt Fund with 10 year constant duration||Min 80% in invested in Gsecs such that the Macaulay duration of the portfolio is equal to 10 years|
|Floater Fund||Min 65% in invested in Floating rate instruments|
Hybrid Mutual Fund Schemes
|Conservative Hybrid||10 ‐ 25% in Equity related instruments & 75 to 90% in Debt instruments|
|Balance Hybrid||40 ‐ 60% in Equity related instruments & 40 to 60% in Debt instruments|
|Aggressive Hybrid||65 ‐ 80% in Equity related instruments & 20 to 35% in Debt instruments|
|Dynamic Asset Allocation/ Balanced Advantage||Investment in equity/ debt that is managed dynamically|
|Multi Asset Allocation||Min 10% investment in atleast 3 asset classes|
|Arbitrage Fund||Min 65% in Equity related instruments which should follow Arbitrage strategy|
|Equity Savings||Min 65% in Equity related instruments & Min 10% in Debt instruments|
Solution Oriented Mutual Fund Schemes
|Retirement Fund||Scheme having a lock‐in for at least 5 years or till retirement age whichever is earlier|
|Children’s Fund||Scheme having a lock‐in for at least 5 years or till the child attains age of majority whichever is earlier|
Other Mutual Fund Schemes
|Index Funds/ ETFs||Min 95% in stocks of a particular Index|
|FoFs (Overseas/ Domestic)||Min 95% in the underlying Fund|
Do you still believe Selecting Mutual Fund schemes is simple? 😉
It’s not rocket science however, its not that easy to zero down on the specific scheme suitable to your requirements out of the thousands of Mutual Fund schemes available in the Market.
Have you come across any one who got super rich by Investing in some random 5 star or top ranking Mutual Funds or trading / investing in tip based Equity shares..??
Do you know what is Risk..?
“Risk comes from not knowing what you are doing”
You are investing your hard earned Money, please take informed investing decisions.
Coming to the subject of the Article…
Here is the list of…
Top performing Mutual Fund in India (It may stop performing anytime! Past performance does not Guarantee Future Performance) Best Mutual Fund to invest in 2018 (There is nothing called Best in Personal Finance) 5 Star rated Mutual Mutual Fund (Star Changes more frequent than you think, Don’t follow it blindly)
Shortlisted Mutual Funds to invest in FY 2018-19 by NIMIT Wealth Management 🙂 (July – Aug 2018)
(Well Researched. However, it may contain some Top rated, Best Mutual Funds or 5 star rated funds)
Equity – Large Cap
Equity – Large & Mid Cap
Equity – Multi Cap
Equity – Mid Cap
Equity – Small Cap
Equity – Value Oriented
Equity – ELSS (Tax Saving)
Hybrid – Aggressive (Equity Oriented)
Hybrid – Equity Savings
Hybrid – Dynamic Asset Allocation/ Balanced Advantage
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- Asset Allocation is a MUST.
- Above is just a list of Shortlisted Funds based on our internal research.
- Selecting scheme of Mutual Fund is only half job done. How much amount to Invest in which Scheme is very crucial.
- Investment decisions depend upon your Goals, Investment horizon, Risk profile, Existing Investments and various other factors.
- Investing is a Serious Business, Don’t do it randomly.
- Review periodically & Rebalance as and when required.
- Have a reasonable expectation of Returns on your portfolio. Over Expectations hurt!
- When you invest in Equity, give it time to perform atleast that much as you give your Gold and Real Estate. 🙂
- If required, Take help of Financial Advisor to achive your Financial Goals (Even Virat Kohli and Lionel Messi have coaches to guide them)
CA Nitesh Buddhadev
CA Mitsu Buddhadev
Nimit Wealth Management
You may reach out to us at firstname.lastname@example.org for any queries, suggestions or feedback.