Mutual Fund scheme changes

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Go through the new fund positioning and understand it. If the basic investment strategy is significantly different and you do not relate to the new positioning you may like to exit.

In the last few weeks, as a mutual fund investor you must have been getting notices from asset management companies (AMCs) on whether you want to exit from the fund where there is a 'change of fundamental attribute'. It may seem like your entire portfolio of mutual funds is changing. Now, all AMCs have been undertaking this process of changing fund descriptions, consequent to Securities and Exchange Board of India's (SEBI) fund categorisation rules. In such a scenario, how do you make out what your fund is up to?

New fund positioning

A little research will reveal what the fund, subsequent to the change, is up to. AMCs have communicated the investment objectives, the asset allocation pattern as per the Scheme Information Document (SID) as well as the brief investment strategy / fund positioning. It is available on the website of the AMCs, and also in the notices that are hitting you. Go through the new fund positioning, understand it, and better still, if you have a financial adviser, consult with him.

An easy way to put things in place is to read Sebi-defined fund categories first. Once you understand what each category stands for and what Sebi expects AMCs to do, your life becomes easy. Now that there is uniformity among AMCs on how they can manage funds in each category, you know the baskets in which the 'blocks' (the funds you have invested in) would be placed. Sebi-defined fund categories are available on the Sebi website, in the circular dated October 6, 2017. Various AMCs have prepared a presentation / leaflet on which fund of theirs correspond to which category, and that would be available on their respective websites.

Once you have put things into place, you have to decipher to what extent your fund has changed. If it is only a peripheral change with the basic investment strategy remaining same or broadly similar, you have got the answer for yourself. In the few cases the change is significant, you have to see which category the fund is going into. It could be a change in the fund itself, or the fund may be merged with another one. You move your block (i.e. fund) from the existing basket (i.e. category) to a new basket. Once you have understood the 'basket', you have to examine whether it suits your scheme of things.

Your final decision

What ultimately matters is your asset allocation and not minor changes in fund description. Your portfolio comprises equity, debt and perhaps a bit of alternates like gold. Even if one of your 'blocks' shift to a different category, it is your overall asset allocation that you have to take care of. If that is broadly in place, then don't rush into anything. Let all the AMCs finish the re-categorisation, and then you can do a proper review of your portfolio.

The benefit of waiting a couple of months will be that once all the AMCs complete the exercise, you will get a full picture of your mutual fund portfolio. The only small downside of waiting is that in the one-month exit window which you get, in case of a 'change of fundamental attribute' of a fund, there is no exit load. The context of exit load is relevant only for funds that have an exit load. Tax implication, if you exit, will be there anyway.

In an extreme case you may like to exit a fund, if it has gone through a 'change of fundamental attribute' and you do not relate to the new positioning. However, there is no 'last date' for exiting; you can do it any day, barring any incidence of exit load in a few funds. You may take your time to analyse what is happening to the funds, and then take a considered decision.

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