The Securities and Exchange Board of India is dividing types of mutual fund investment up into five categories and has said that it will normally allow only allow one scheme per category. It wants to help investors in mutual funds evaluate the different options available before taking informed decisions about investing in schemes.

The regulator, in a recently released circular, thinks it desirable for different schemes launched by a mutual fund to be distinct from one another in terms of asset allocation, investment strategy etc. It also wants to bring in uniformity in the characteristics of similar types of schemes launched by different mutual funds. To accomplish this uniformity between mutual funds and to standardise the scheme categories and characteristics of each category, it has decided to categorise the mutual fund schemes broadly in the following groups.

• Equity schemes.
• Debt schemes.
• Hybrid schemes.
• Solution-oriented schemes.
• Other schemes.

In the case of solution-oriented schemes, there will be a specified period of lock-in. This period is not to apply to any existing investment by an investor or a registered Systematic Investment Plan (SIP) in the existing schemes when they are being realigned with the provisions of the circular.

SEBI now defines large cap, mid cap and small cap as follows.

• Large Cap: 1st-100th company in terms of full market capitalisation.
• Mid Cap: 101st-250th company in terms of full market capitalisation.
• Small Cap: 251st company onwards in terms of full market capitalisation.

There is a process to be followed for the categorisation and rationalisation of schemes. Only one scheme per category is to be permitted, except:

• index funds/exchange-traded funds replicating/ tracking different indices;
• funds-of-funds having different underlying schemes; and
• sectoral/thematic funds investing in different sectors/ themes.

SEBI is to require mutual funds to analyse each of their existing schemes with reference to its list of categories and submit their proposals to it after obtaining due approval from their trustees as early as possible but not later than 2 months after the date of the circular. After SEBI has made its observations about each proposals, the mutual fund in question will be obliged to make the necessary changes in all respects within a maximum period of three months.