A step in the right direction! Recently in October, SEBI issued new reforms on categorization of Mutual Fund Schemes and has narrowed down on just five main categories (Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes and Other Schemes) to curb the unnecessary cluster within mutual fund houses. This indeed is a big shakeup for the mutual fund industry in which they have to categorize their existing schemes according to the new categorization. This will surely help investors who are confused with the multiple schemes and probably help put a leash on mis-selling as schemes will have common parameters through means of categorization. Click here to know more about SEBI’s categorization and rationalization of Mutual Fund Schemes.
With the start of the New Year, there will be many “me too” funds launched. The SEBI order applies only to open ended schemes which mean that there is a high chance of multiple schemes in the closed-ended category springing up in the New Year. Closed-ended schemes have a lock-in of usually three or five years where investors who bought during the new fund offer, can redeem only once the product matures or on the Stock Exchange where they are listed. Fair bit of mis-selling may happen if the commissions are high. Investors who buy closed-ended schemes may realize that liquidity is poor in case they need redemption in a hurry. If an investor needs more money, his only option is to sell on the Stock Exchange which can be at a discount to the NAV (as is as present).
From a retail participation point of view, with the decline in interest rates both in terms of savings rate of interest as well as the fixed deposit rate of interest, investors have little choice but to reallocate their wealth to other asset class such as equity to improve their returns over the long term. That is also one of the reason why MF industry is looking forward to get a nod from government for Pension Funds. I believe, investments in equity market through mutual funds over a long period, as suited for a pension plan (depending on the age profile of the investor), could allow investors to make the most of the rising market. The Mutual Fund industry is well regulated by SEBI as well as through various best practice guidelines issued by AMFI from time to time. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual fund industry. This makes it safer and convenient for investors to invest through the mutual funds. Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research on companies, the industry and the economy thus ensuring informed investment. Secondly, they regularly track the market. Mutual Funds help investors to invest very small amounts (like Rs 100, Rs 500 etc) in SIP, as against larger one-time investment required, if we were to buy directly from the market.
Hence retail participation will continue to improve in the Indian markets. Ideally speaking, investors need better awareness with regards to inflation and how much it eats into their chunk of savings. With most of their savings stashed away in popular asset classes such as gold and real estate, investors’ are slowly turning towards mutual funds as we see a huge number of mutual fund folios & domestic retail inflows into financial markets. A clear shift has been noticed in the savings patterns of Indians, as the following data points suggest, over the past few months. According to AMFI, total inflows into mutual funds across equity, balanced and equity ELSS categories since January 01 this year stood at Rs 1,77,223 crore till November end. Close to 50% of these inflows have been parked in debt to balanced funds, and the rest went into equity-oriented schemes.
Asset allocation may become popular in the near future. Everyone has dreams and desires but not all plan their investments according to their goals. Most people just invest in an unplanned manner. Goal based investing adds direction to an investment. Having a purpose behind every rupee that you invest is known as goal based investing. In the coming year I foresee more of such funds introduced by fund houses. Goal based investing adds direction to an investment. For investors, goal based investing offers a structured, well thought out process for investing, where they know the purpose behind the hard earned money that is being invested. Mutual Funds may start playing advisory role to tap these investors looking for goal based investing.
A fresh consultation will be released soon wherein SEBI expects clear segregation between the two activities of the entity i.e. providing investment advice and distribution of the investment products/ execution of investment transactions. Mutual Fund Distributors (MFDs), while distributing their mutual fund products can explain the features of products to client, and shall ensure the principle of ‘appropriateness’ of products to the investors.
To further augment the corporate governance of CRA & AMC, SEBI has announced measures which will ensure that more serious players will venture out into CRA business. Segregation of CRA’s activities other than the rating of financial instruments and economic/ financial research to a separate legal entity means that the common scrip level valuation hinted by RBI & SEBI across multiple players in the financial industry would be now done by separate legal entity whose activities are not influenced by the business of financial instrument ratings. Similarly to avoid potential conflict of interest a sponsor, AMC or its associates will not be allowed to have more than 10% stake or representation on the Board of AMC / Trustee Company of any other Mutual Funds. With more disclosures by issuers of listed debt, hopefully meaningful data will be available to investors of such debt to analyze the financial health of the issuers.
Disclaimer, Statutory Details & Risk Factors: The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Mutual fund investments are subject to market risks read all scheme related documents carefully.
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