Mutual funds: Key developments that investors must note
Mutual funds witnessed significant developments during the past week. Here are some key highlights that investors must bear in mind.
1. SEBI’s new rules for multi-cap funds
The Securities and Exchange Board of India (SEBI) issued new rules for multi-cap funds. After the new rules, multi-cap funds will need to invest a minimum of 25% of its portfolio in each category – large cap, mid cap, and small cap. The remaining 25% can be invested across categories based on the fund’s strategy. Fund managers will now be required to rebalance their portfolios to comply with the new rules. Investors who have invested in multi-cap funds must check with their fund managers regarding the new rules.
2. Ban on new fund launches by Franklin Templeton
The Securities Appellate Tribunal (SAT) stayed SEBI’s ban order on Franklin Templeton’s from launching new funds. However, the SAT has not overturned the SEBI’s order to wind up six of its debt funds. Franklin Templeton has said that it will challenge SEBI’s decision in the Supreme Court. Meanwhile, existing investors in these funds will receive their money back in tranches as and when the funds’ assets are liquidated.
3. Change in benchmark indices for large cap and mid cap mutual funds
Starting January 2021, SEBI has mandated that large cap mutual funds will have to compare their benchmark with Nifty 100, instead of Nifty 50. Similarly, mid cap mutual funds will need to compare their performance with Nifty Midcap 150, instead of Nifty Midcap 100. These changes have been made to give a more accurate representation of the portfolio performance. Investors may see changes in the returns generated by their mutual funds as a result of the change in benchmark indices.
In conclusion, mutual fund investors must pay attention to these key developments and keep a close watch on their portfolios. It is always recommended to consult with financial advisors before making any investment decisions. By staying informed and taking prudent investment decisions, investors can reap the benefits of mutual funds.