Equity Funds can now invest in Gold, Silver & InvITs
Equity mutual funds will now be able to invest up to 35 per cent of their non-core investment assets in gold funds, silver funds, Infrastructure Investment Trusts, and debt securities, as per the new guidelines laid down by the Securities Exchange Board of India.
This will provide fund managers with much-needed flexibility, allowing them to invest their funds in alternative assets instead of holding on to cash during periods of market uncertainty.
Sectoral & Thematic funds must now be ‘True to Label’
The Securities Exchange Board of India (SEBI) has put in place tighter norms to ensure mutual funds are “true to label.” Under the new norms, a sectoral or thematic mutual fund scheme, say pharma or defence, should not have a portfolio overlap of more than 50 per cent with any other equity scheme offered by the same mutual fund house.
The objective is to ensure sectoral mutual fund schemes do not turn into diversified mutual fund schemes in disguise. Sectoral and thematic mutual fund schemes will have a period of three years to comply with the new norm.
Monthly portfolio overlap disclosures introduced
In this regard, the Securities Exchange Board of India, or SEBI, has directed that mutual fund houses disclose their mutual fund portfolio overlaps on a monthly basis, covering equity, debt, and hybrid schemes.
The rationale for this move is to provide greater transparency so that investors can gain clarity on the overlap of their funds, while at the same time addressing the problem of over-diversification, where investors may be investing in multiple funds without even realising that they are investing in the same assets twice over.
Value funds vs Contra funds: SEBI now allows both to exist under same fund house
Earlier, a fund house had to pick either a value fund or a contra fund, not both. SEBI now allows both to exist under the same fund house. However, the condition is that the two funds cannot overlap more than 50 per cent in their portfolio holdings, ensuring they stay genuinely different. Value funds buy undervalued stocks; contra funds go against the crowd.
SEBI discontinues ‘solution-oriented’ category: What does it mean?
The Securities and Exchange Board of India has officially discontinued the ‘solution-oriented’ category, which included Retirement Funds and Children’s Funds. These schemes will be merged into other funds with similar asset allocation and risk profiles. In their place, SEBI has introduced Life Cycle Funds, smarter, goal-based funds that automatically adjust their portfolio over time.
Life Cycle Funds Explained: India’s take on Target-Date investing
The funds will invest in equities in the early years of the chosen tenure, gradually moving to other asset classes such as debt as the tenure of the fund approaches maturity.
Each asset management company can launch up to 6 Life Cycle Funds at a time. The funds can be suitable for long-term financial goals such as retirement planning or planning for a child’s education, where the required risk level varies as the goal matures.
Sectoral Debt Funds Introduced: What it means for fixed-income investors
In a significant move for debt market participants, the Securities and Exchange Board of India (SEBI) has allowed asset management companies to launch sectoral debt funds.
These funds will focus on lending to specific sectors such as financial services, energy, infrastructure, housing, and real estate by investing in bonds issued by companies within those industries.
However, such schemes can only be launched if there are sufficient investment-grade bonds available in the chosen sector, ensuring that the funds maintain adequate credit quality for investors.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
