Sebi introduces life-cycle mutual funds, check here for details
Mutual funds will now be permitted to offer both value and contra mutual funds as long as the scheme portfolio overlap between the two schemes is not more than 50%.
Sebi, India's capital markets regulator, has announced several changes to how mutual fund schemes are categorised.
The biggest change is the introduction of life-cycle funds. At the same time, solution-oriented funds are being discontinued, effective immediately. Fund houses (AMCs) can also now launch both contra and value funds, as long as the two portfolios overlap by less than 50%. Sebi has issued similar circulars before, on 6 October 2017 and 6 November 2020.
What are life-cycle funds?
According to the circular, these are open-ended funds with a fixed maturity date and a set glide path, meant for goal-based investing. They can invest across equity, debt, InvITs, ETCDs, and gold and silver ETFs.
Sridharan Sundaram, a Sebi-registered investment advisor and CEO of Wallet Wealth, welcomed the move. He said it will give investors more clarity. "Some of these will be long-term funds with more equity and less debt. The life-cycle funds, with a five-year lock-in, will work much like hybrid funds. Once it's clearer, investors can choose based on their age and how much risk they can take," he said.
Preeti Zende, founder of Apna Dhan Financial Services, said life-cycle funds make investing simpler and help with risk management and emotional decision-making. "As the target date gets closer, say retirement, these funds slowly move money from riskier equities into safer debt. That helps protect your capital," she said.
Other key changes
1. Fund of funds (FOF): AMCs can launch a fund of funds that holds several underlying funds, within broad categories. The circular sets out six broad categories and 15 sub-categories: equity-oriented, debt-oriented, hybrid (domestic), commodity-based (domestic), overseas, and domestic and overseas. Each can be offered as active, passive, or a mix of both. Sundaram noted that a fund of funds can now be built only around broad asset types, not themes such as volatility.
2. Value and contra funds: Fund houses can now offer both, but the portfolio overlap between the two schemes cannot go above 50%.
3. Sectoral and thematic funds: A new sectoral or thematic equity scheme must not overlap by more than 50% with other schemes in the sectoral/thematic category, or with other equity scheme categories. Large-cap schemes are the exception.
