As we speak, your fund house is either recategorising your mutual fund scheme or has already done it. In other words, if you invest in a large-cap fund, it would look like a large-cap fund, instead of anything else, going ahead too. If you invest in a corporate bond fund, it would not take unnecessary credit risk and invest in low-rated debt instruments. All this is part of an exercise that the capital market regulator, Securities and Exchange Board of India (Sebi) started in October 2017 when it came out with a list of 36 categories for mutual funds, defined these categories, and told all mutual funds to realign their schemes and their underlying portfolios to these new categories.
The first list of scheme re-categorisation is out and fancy names are being dropped. A side effect—and a much desired one—of this exercise is that the scheme names would now better reflect what your scheme is all about. So, what has changed? Words like ‘prudence’ and ‘opportunities’ have to be used sparingly now, and preferably not used at all. For instance, Mirae Asset Prudence fund—a balanced fund—is now called Mirae Asset Hybrid-Equity fund. IDBI Prudence Fund will also now be called IDBI Hybrid Equity Fund.
Typically, fund houses give the name ‘prudence’ to their balanced funds—perhaps after HDFC Prudence Fund (HPF), India’s largest balanced fund with assets of nearly Rs40,000 crore. It is not yet clear as to what HPF will be called; the fund house declined to comment as its proposal is lying with Sebi, pending approval.
The word ‘opportunities’ would also be used sparingly now. For instance, if your multi-cap fund was called an ‘opportunities’ fund, it would now need to drop this word from its name. Mirae Asset India Opportunities Fund is now called Mirae Asset India Equity Fund.
Mint reached out to Sebi on these issues but it was not available for comments. However, mutual fund industry officials familiar with Sebi’s functioning told us that Sebi is not comfortable with the word ‘opportunities’ being used for multi-cap funds. However, it appears to be okay with a mid-cap scheme calling itself a ‘mid-cap opportunities fund’. That way, at least you would know what the fund is all about, that it is a mid-cap fund.
Further, now a debt fund that invests in low-rated papers to get an extra kicker in returns, cannot be called an ‘opportunities’ fund. DSP BlackRock Income Opportunities fund has changed its name to DSP BlackRock Credit Risk fund. If a fund takes credit risk, then that is what the fund’s name should reflect, the official quoted above told us, and not by “any other fancy name."
Another word that some mutual funds may now have to drop, it appears, is ‘advantage.’ Some schemes used to have this word in their name that gave the impression that they could either be superior or better-performing than their peers. Of course, none used to guarantee any performance; it was just a fancy-sounding name.
That’s going to change too. Edelweiss Large Cap Advantage fund is now called Edelweiss Large Cap fund. Similarly, Edelweiss Equity Saving Advantage Fund is now Edelweiss Equity Saving Fund.