SEBI - Categorization and Rationalization of Mutual Fund Schemes

 

Securities and Exchange Board of India

 

 

CIRCULAR

 

SEBI/HO/IMD/DF3/CIR/P/2017/114                                                                                                                                                              October 6, 2017

 

 

All Mutual Funds/Asset Management Companies (AMCs)/ Trustee Companies/Boards of Trustees of Mutual Funds/ AMFI

 

 

Sir/ Madam,

 

 

Subject: Categorization and Rationalization of Mutual Fund Schemes

 

  1. It is desirable that different schemes launched by a Mutual Fund are clearly distinct in terms of asset allocation, investment strategy etc. Further, there is a need to bring in uniformity in the characteristics of similar type of schemes launched by different Mutual Funds. This would ensure that an investor of Mutual Funds is able to evaluate the different options available, before taking an informed decision to invest in a scheme.

 

  1. In order to bring the desired uniformity in the practice, across Mutual Funds and to standardize the scheme categories and characteristics of each category, the issue was discussed in Mutual Fund Advisory Committee (MFAC). Accordingly, it has been decided to categorize the MF schemes as given below:

 

  1. Categories of Schemes, Scheme Characteristics and Type of Scheme (Uniform Description of Schemes):

 

  1. The Schemes would be broadly classified in the following groups:

 

       a.Equity Schemes

       b. Debt Schemes

       c. Hybrid Schemes

       d. Solution Oriented Schemes

       e. Other Schemes

 

      The details of the scheme categories under each of the aforesaid groups along with their characteristics and uniform description are given in the Annexure.

 

  1. As per the annexure, the existing ‘type of scheme’ (presently mentioned below the scheme name in the offer documents/ advertisements/ marketing material/etc) would be replaced with the type of scheme (given in the third column of the tables in the Annexure) as applicable to each category of scheme. This will enhance the existing disclosure. Hence, for the purpose of alignment of the existing schemes with the provisions of this circular, change in “type of scheme” alone, would not be considered as a change in fundamental attribute.

 

  1. In case of Solution oriented schemes, there will be specified period of lock in as stated in the Annexure.

 

However, the said lock- in period would not be applicable to any existing investment by an investor, registered SIPs and incoming STPs in the existing solution oriented schemes as on the date on which such scheme is getting realigned with the provisions of this circular.

 

  1. The investment objective, investment strategy and benchmark of each scheme shall be suitably modified (wherever applicable) to bring it in line with the categories of schemes listed above.

 

         #Definition of Large Cap, Mid Cap and Small Cap:

 

  1. In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided to define large cap, mid cap and small cap as follows:
    1. Large Cap: 1st -100th company in terms of full market capitalization
    2. Mid Cap: 101st -250th company in terms of full market capitalization
    3. Small Cap: 251st company onwards in terms of full market capitalization
  2. Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard and AMFI would adhere to the following points while preparing the list:

       a. If a stock is listed on more than one recognized stock exchange, an average of full market capitalization of the stock on all such stock exchanges, will be computed;

       b.In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered.

       c. This list would be uploaded on the AMFI website and the same would be updated every six months based on the data as on the end of June and December of each year. The data shall be            available on the AMFI website within 5 calendar days from the end of the 6 months period.

 

  1. Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one month.

 

  • Process to be followed for categorization and rationalization of schemes:

         a.Only one scheme per category would be permitted, except:

         .Index Funds/ ETFs replicating/ tracking different indices;

         .Fund of Funds having different underlying schemes; and

         .Sectoral/ thematic funds investing in different sectors/ themes

        b. Mutual Funds would be required to analyze each of their existing schemes in light of the list of categories stated herein and submit their proposals to SEBI after obtaining due approvals                    from their Trustees as early as possible but not later than 2 months from the date of this circular.

        c.The aforesaid proposals of the Mutual Funds would also include the proposed course of action (viz., winding up, merger, fundamental attribute change etc.) in respect of the existing similar              schemes as well as those that are not in alignment to the categories stated herein.

        d.Subsequent to the observations issued by SEBI on the proposals, Mutual Funds would have to carry out the necessary changes in all respects within a maximum period of 3 months from the             date of such observation.

        e. Where there is a merger of schemes/change of fundamental attribute(s) of a scheme (as laid down under SEBI Circular No. IIMARP/MF/CIR/01/294/98 dated February 4, 1998), the AMCs                 would be required to comply with Regulation 18 (15A) of SEBI (Mutual Funds Regulation, 1996).

        f. Mutual Funds are advised to strictly adhere to the scheme characteristics stated herein as well as to the spirit of this circular. Mutual Funds must ensure that the schemes so devised should              not result in duplication/minor modifications of other schemes offered by them. The decision of SEBI in this regard shall be binding on all the mutual funds.

 

#Applicability of this circular:

 

        a. All existing open ended schemes of all Mutual Funds

        b.All such open ended schemes where SEBI has issued final observations but have not yet been launched.

        c.All open ended schemes in respect of which draft scheme documents have been filed with SEBI as on date

        d.All open ended schemes for which a mutual fund would file draft scheme document.

 

This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 

 

 

Yours faithfully,

 

 

 

 

RAJESH GUJJAR

Deputy General Manager

Tel no.: 022-26449232

 

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

Annexure:

 

  1. Equity Schemes:

 

Sr.

Category

of

Scheme Characteristics

Type

of

scheme

(uniform

No.

Schemes

 

 

description of scheme)

 

 

 

 

 

1

Multi Cap Fund

Minimum  investment  in  equity  &

Multi  Cap  Fund-  An  open

 

 

 

equity related instruments- 65% of

ended equity scheme investing

 

 

 

total assets

across  large  cap,  mid  cap,

 

 

 

 

small cap stocks

 

 

 

 

 

 

 

2

Large Cap Fund

Minimum  investment  in  equity  &

Large  Cap  Fund-  An  open

 

 

 

equity related instruments of large

ended

 

equity

 

scheme

 

 

 

cap companies- 80% of total assets

predominantly

investing

in

 

 

 

 

large cap stocks

 

 

 

 

 

 

 

3

Large & Mid Cap

Minimum  investment  in  equity  &

Large  &  Mid  Cap  Fund-  An

 

Fund

 

equity related instruments of large

open

ended  equity

scheme

 

 

 

cap companies- 35% of total assets

investing in both large cap and

 

 

 

Minimum  investment  in  equity  &

mid cap stocks

 

 

 

 

 

 

 

equity  related  instruments  of  mid

 

 

 

 

 

 

 

 

 

 

cap stocks- 35% of total assets

 

 

 

 

 

 

 

 

 

 

 

4

Mid Cap Fund

Minimum  investment  in  equity  &

Mid Cap Fund- An open ended

 

 

 

equity  related  instruments  of  mid

equity

scheme

predominantly

 

 

 

cap companies- 65% of total assets

investing in mid cap stocks

 

 

 

 

 

5

Small cap Fund

Minimum  investment  in  equity  &

Small  Cap  Fund-  An  open

 

 

 

equity related instruments of small

ended

 

equity

 

scheme

 

 

 

cap companies- 65% of total assets

predominantly

investing

in

 

 

 

 

small cap stocks

 

 

 

 

 

 

 

 

6

Dividend

Yield

Scheme    should    predominantly

An open ended equity scheme

 

Fund

 

invest in dividend yielding stocks.

predominantly

investing

in

 

 

 

 

dividend yielding stocks

 

 

 

 

Minimum investment in equity- 65%

 

 

 

 

 

 

 

 

 

 

of total assets

 

 

 

 

 

 

 

 

 

 

 

7

Value Fund*

Scheme  should  follow  a  value

An open ended equity scheme

 

 

 

investment strategy.

following

a  value

investment

 

 

 

Minimum  investment  in  equity  &

strategy

 

 

 

 

 

 

 

 

equity related instruments - 65% of

 

 

 

 

 

 

 

 

 

 

total assets

 

 

 

 

 

 

 

 

 

 

 

 

Contra Fund*

Scheme should follow a contrarian

An open ended equity scheme

 

 

 

investment strategy.

following contrarian investment

 

 

 

Minimum  investment  in  equity  &

strategy

 

 

 

 

 

 

 

 

equity related instruments - 65% of

 

 

 

 

 

 

 

 

 

 

total assets

 

 

 

 

 

 

 

 

 

 

 

8

Focused Fund

A scheme focused on the number of

An open ended equity scheme

 

 

 

stocks (maximum 30)

investing

in

maximum

30

 

 

 

Minimum  investment  in  equity  &

stocks

(mention

where

the

 

 

 

equity related instruments - 65% of

scheme intends to focus, viz.,

 

 

 

total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities and Exchange Board of India

 

 

 

 

 

 

 

multi cap, large cap, mid cap,

 

 

 

small cap)

 

 

 

 

9

Sectoral/

Minimum  investment  in  equity  &

An open ended equity scheme

 

Thematic

equity  related  instruments  of  a

investing in __ sector (mention

 

 

particular sector/ particular theme-

the sector)/

 

 

80% of total assets

An open ended equity scheme

 

 

 

following  __  theme  (mention

 

 

 

the theme)

 

 

 

 

10

ELSS

Minimum  investment  in  equity  &

An  open  ended  equity  linked

 

 

equity related instruments - 80% of

saving scheme with a statutory

 

 

total  assets  (in  accordance  with

lock  in  of  3  years  and  tax

 

 

Equity Linked Saving Scheme, 2005

benefit

 

 

notified by Ministry of Finance)

 

 

 

 

 

  • Mutual Funds will be permitted to offer either Value fund or Contra fund.

 

  1. Debt Schemes

 

Sr.

Category

of

Scheme Characteristics

 

Type

of

scheme

(uniform

No.

Schemes

 

 

 

 

description of scheme)

 

 

 

 

 

 

1

Overnight Fund**

Investment

in  overnight  securities

An open ended debt scheme

 

 

 

 

having maturity of 1 day

 

investing in overnight securities

 

 

 

 

 

 

2

Liquid Fund $ **

Investment

in  Debt   and

money

An open ended liquid scheme

 

 

 

 

market  securities  with  maturity  of

 

 

 

 

 

 

 

 

 

 

 

upto 91 days only

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

Ultra

 

Short

Investment in Debt & Money Market

An open ended ultra-short term

 

Duration Fund

instruments such that the Macaulay

debt

scheme

investing

in

 

 

 

 

duration of the portfolio is between

instruments

with

Macaulay

 

 

 

 

3 months - 6 months

 

duration between 3 months and

 

 

 

 

 

 

 

6 months (please refer to page

 

 

 

 

 

 

 

no.__)#

 

 

 

 

 

4

Low

Duration

Investment in Debt & Money Market

An  open  ended  low  duration

 

Fund

 

 

instruments such that the Macaulay

debt

scheme

investing

in

 

 

 

 

duration of the portfolio is between

instruments

with

Macaulay

 

 

 

 

6 months- 12 months

 

duration between 6 months and

 

 

 

 

 

 

 

12  months  (please  refer  to

 

 

 

 

 

 

 

page no.__)#

 

 

 

 

5

Money

 

Market

Investment

in   Money

Market

An open ended debt scheme

 

Fund

 

 

instruments having maturity upto 1

investing

in

 

money  market

 

 

 

 

year

 

 

instruments

 

 

 

 

 

 

 

 

 

6

Short

Duration

Investment in Debt & Money Market

An open ended short term debt

 

Fund

 

 

instruments such that the Macaulay

scheme

 

investing

in

 

 

 

 

duration of the portfolio is between

instruments

with

Macaulay

 

 

 

 

1 year – 3 years

 

duration between 1 year and 3

 

 

 

 

 

 

 

years  (please  refer  to  page

 

 

 

 

 

 

 

no.__)#

 

 

 

 

 

7

Medium Duration

Investment in Debt & Money Market

An open ended medium term

 

Fund

 

 

instruments such that the Macaulay

debt

scheme

investing

in

 

 

 

 

 

 

 

instruments

with

Macaulay

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities and Exchange Board of India

 

 

 

 

 

 

duration of the portfolio is between

duration between 3 years and 4

 

 

 

3 years – 4 years

 

years  (please  refer  to  page

 

 

 

 

 

 

no.__)#

 

 

 

 

 

 

8

Medium to Long

Investment in Debt & Money Market

An open ended medium term

 

Duration Fund

instruments such that the Macaulay

debt

scheme

investing

in

 

 

 

duration of the portfolio is between

instruments

with

Macaulay

 

 

 

4 – 7 years

 

duration between 4 years and 7

 

 

 

 

 

 

years  (please  refer  to  page

 

 

 

 

 

 

no.__)#

 

 

 

 

 

 

9

Long

Duration

Investment in Debt & Money Market

An open ended

debt scheme

 

Fund

 

Instruments such that the Macaulay

investing

in

instruments

with

 

 

 

duration of the portfolio is greater

Macaulay duration greater than

 

 

 

than 7 years

 

7 years (please refer to page

 

 

 

 

 

 

no.__)#

 

 

 

 

 

 

10

Dynamic Bond

Investment across duration

An open ended dynamic debt

 

 

 

 

 

 

scheme

investing

 

across

 

 

 

 

 

 

duration

 

 

 

 

 

 

 

 

 

 

 

 

11

Corporate  Bond

Minimum

investment  in

corporate

An open ended debt scheme

 

Fund

 

bonds- 80% of total assets (only in

predominantly

investing

in

 

 

 

highest rated instruments)

 

highest rated corporate bonds

 

 

 

 

 

 

 

12

Credit

Risk

Minimum

investment  in

corporate

An open ended debt scheme

 

Fund^

 

bonds-   65%   of   total   assets

investing in below highest rated

 

 

 

(investment in below highest rated

corporate bonds

 

 

 

 

 

 

 

instruments)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

Banking

and

Minimum

investment

in   Debt

An open ended debt scheme

 

PSU Fund

instruments of banks, Public Sector

predominantly investing in Debt

 

 

 

Undertakings,    Public

Financial

instruments

of

banks,

Public

 

 

 

Institutions- 80% of total assets

Sector

Undertakings,

Public

 

 

 

 

 

 

Financial Institutions

 

 

 

 

 

 

 

14

Gilt Fund

Minimum investment in Gsecs- 80%

An open ended debt scheme

 

 

 

of total assets (across maturity)

investing

 

in

government

 

 

 

 

 

 

securities across maturity

 

 

 

 

 

15

Gilt Fund with 10

Minimum investment in Gsecs- 80%

An open ended debt scheme

 

year

constant

of   total   assets   such  that   the

investing

 

in

government

 

duration

 

Macaulay duration of the portfolio is

securities

having  a

constant

 

 

 

equal to 10 years

 

maturity of 10 years

 

 

 

 

 

 

 

16

Floater Fund

Minimum investment in floating rate

An open ended debt scheme

 

 

 

instruments- 65% of total assets

predominantly

investing

in

 

 

 

 

 

 

floating rate instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Provisions of SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010 shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.

 

$ All provisions mentioned in SEBI circular SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009 in respect of liquid schemes shall be applicable

 

 

 

 

 

Securities and Exchange Board of India

 

 

 

  • Please refer to the page number of the Offer Document on which the concept of Macaulay’s Duration has been explained

 

  • Words/ phrases that highlight/ emphasize only the return aspect of the scheme shall not be used in the name of the scheme (for instance Credit Opportunities Fund, High Yield Fund, Credit Advantage etc.)

 

  1. Hybrid Schemes

 

Sr.

Category of

Scheme Characteristics

 

Type

of

scheme

(uniform

No.

Schemes

 

 

 

 

 

description of scheme)

 

 

 

 

1

Conservative

Investment in equity & equity related

An open ended hybrid scheme

 

Hybrid Fund

instruments- between 10% and 25%

investing predominantly in debt

 

 

 

of total assets;

 

 

instruments

 

 

 

 

 

Investment  in  Debt  instruments-

 

 

 

 

 

 

 

 

between  75%  and  90%  of  total

 

 

 

 

 

 

 

 

assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

Balanced Hybrid

Equity & Equity related instruments-

An

open

 

ended

balanced

 

Fund @

 

between  40%   and  60%  of  total

scheme investing in equity and

 

 

 

assets;

 

 

 

 

debt instruments

 

 

 

 

Debt  instruments-  between  40%

 

 

 

 

 

 

 

 

and 60% of total assets

 

 

 

 

 

 

 

 

 

No Arbitrage would be permitted in

 

 

 

 

 

 

 

 

this scheme

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggressive

 

Equity & Equity related instruments-

An open ended hybrid scheme

 

Hybrid Fund @

between  65%  and  80%  of  total

investing

predominantly   in

 

 

 

assets;

 

 

 

 

equity   and

equity

related

 

 

 

Debt  instruments-  between  20%

instruments

 

 

 

 

 

35% of total assets

 

 

 

 

 

 

 

 

 

 

 

3

Dynamic

Asset

Investment  in  equity/  debt  that  is

An open ended dynamic asset

 

Allocation or

managed dynamically

 

allocation fund

 

 

Balanced

 

 

 

 

 

 

 

 

 

 

 

 

Advantage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

Multi

Asset

Invests  in  at  least  three  asset

An

open

ended

scheme

 

Allocation ##

classes with a minimum allocation

investing in __, __, __ (mention

 

 

 

of  at  least 10% each in all three

the

three

different   asset

 

 

 

asset classes

 

 

classes)

 

 

 

 

 

 

 

 

 

 

 

 

5

Arbitrage Fund

Scheme

following

arbitrage

An

open

ended

scheme

 

 

 

strategy.

Minimum  investment  in

investing

 

in

arbitrage

 

 

 

equity & equity related instruments-

opportunities

 

 

 

 

 

65% of total assets

 

 

 

 

 

 

 

 

 

 

 

 

 

6

Equity Savings

Minimum  investment  in  equity  &

An

open

ended

scheme

 

 

 

equity related instruments- 65% of

investing

in

equity,

arbitrage

 

 

 

total

assets

and

minimum

and debt

 

 

 

 

 

 

investment  in  debt-  10%  of  total

 

 

 

 

 

 

 

 

assets

 

 

 

 

 

 

 

 

 

 

 

 

Minimum hedged & unhedged to be

 

 

 

 

 

 

 

 

stated in the SID.

 

 

 

 

 

 

 

 

 

 

Securities and Exchange Board of India

 

 

 

Asset   Allocation   under    defensive

 

considerations may also be stated

 

in the Offer Document

 

  • Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or Balanced fund

 

## Foreign securities will not be treated as a separate asset class

 

  1. Solution Oriented Schemes:

 

 

Sr.

Category

of

Scheme Characteristics

Type

of

scheme

(uniform

 

No

Schemes

 

 

description of scheme)

 

 

 

 

 

 

 

 

1

Retirement Fund

Scheme having a lock-in for at least

An   open

ended

retirement

 

 

 

 

5  years  or  till  retirement  age

solution

oriented

scheme

 

 

 

 

whichever is earlier

having a lock-in of 5 years or till

 

 

 

 

 

retirement

age  (whichever  is

 

 

 

 

 

earlier)

 

 

 

 

 

 

 

 

2

Children’s Fund

Scheme having a lock-in for at least

An   open   ended   fund   for

 

 

 

 

5 years or till the child attains age of

investment for children having

 

 

 

 

majority whichever is earlier

a lock-in for at least 5 years or

 

 

 

 

 

till  the  child  attains  age  of

 

 

 

 

 

majority (whichever is earlier)

 

 

 

 

 

 

 

 

 

 

A.  Other Schemes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sr.

Category

of

Scheme Characteristics

Type

of

scheme

(uniform

 

No

Schemes

 

 

description of scheme)

 

 

 

 

 

 

 

 

 

 

1

Index

Funds/

Minimum investment in securities of

An

open

ended

scheme

 

 

ETFs

 

a particular index (which is being

replicating/ tracking _ index

 

 

 

 

replicated/  tracked)-  95%  of  total

 

 

 

 

 

 

 

 

assets

 

 

 

 

 

 

 

 

 

 

2

FoFs (Overseas/

Minimum investment in the

An  open ended fund of  fund

 

 

Domestic)

underlying fund- 95% of total assets

scheme investing in ___ fund

 

 

 

 

 

(mention the underlying fund)

 

 

 

 

 

 

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