SEBI on Mutual Fund: Major Change in Mutual Fund Rules; ‘Life Cycle Fund’ introduced by SEBI

• Amendments to Mutual Fund Regulations
• ‘Life Cycle Fund’ introduced by SEBI
• Impact on retirement and education funds

SEBI on Mutual Funds: Markets regulator Sebi on Thursday issued a revised framework for classification of mutual fund schemes. Under this, ‘life cycle funds’ have been included, the category of solution-oriented schemes has been eliminated and disclosure norms have been tightened to enhance uniformity and investor protection. The move is to curb exaggerated refund claims in scheme names and ensure ‘name is true’. SEBI is striving to tailor the regulatory framework to the changing mutual fund landscape and emerging opportunities across various asset classes.

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In its circular, the Securities and Exchange Board of India (SEBI) has broadly classified schemes into five categories: equity, debt (bond), hybrid, life cycle and other schemes; Fund of Fund Scheme; and passive schemes like index funds or ETFs (exchange traded funds). SEBI has said that the name of the scheme will be according to the scheme category. The objective is to make it easier for investors to identify the schemes and to bring uniformity in names of schemes in a particular category among mutual funds.

The market regulator said that scheme names should not use words/phrases that only refer to the returns aspect of the scheme. Description of ‘Scheme Type’ in offer documents and advertisements should strictly follow the format prescribed by SEBI. Nikunj Saraf, CEO, Choice Wealth, said SEBI’s new classification rules are an important step towards simplifying an increasingly complex industry for retail investors. He said, ‘By clearly defining categories across equity, debt (bond), hybrid and solution oriented funds and setting uniform asset allocation limits, the regulator is ensuring that schemes truly reflect their claims.

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This reduces duplication, improves comparability and brings much-needed transparency to production status.’ As per the circular, the category of solution oriented schemes has been discontinued with immediate effect. New investments will not be accepted in existing schemes under this category and will be merged with other schemes having similar asset allocation and risk profile subject to SEBI’s prior approval. Solution Oriented Mutual Fund Schemes are specialized, long-term investment vehicles designed for specific goals such as retirement or children’s education.