How standardized Fund categories help Investors follow Investing best practices

How standardized Fund categories help Investors follow Investing best practices

Lack of investing

In 2017, SEBI decided to go about with the mutual fund reorganization that it had been planning for so long, while many were skeptical about the reorganization and what it might hold for the future of mutual fund investment, from the perspective of investors it was a helping move. The move to standardize mutual funds helped investors to follow the best investment practices and generate better profits without get lost and tangled in the complexities of Mutual Funds. Some of the positives that one can take from the standardization are given below:-

  1. Less confusion

With the presence of so many fund houses and the large variety of schemes they used to offer, it used to complicate the investment scenario for the investors where they would spend their time only interpreting, reading and concluding each scheme, each fixed return before they would invest. This is about to change, with the standardization of Mutual Funds, SEBI has defined 10 categories of equity funds, 16 categories of debt funds, 6 of hybrid funds, 2 of solution based funds and one for each exchange traded funds and funds of funds, this has really reduced the confusion as to where and which scheme to invest in.

  1. Comparison of fund rating across rating agencies

Often before the standardization was implemented by Sebi, many different rating agencies have been using their own definition of for classification, this results in the data not being standardized and realiable. This has changed, after the implementation of the standardization of funds, Sebi has now precisely defined the definition of each kind of fund and the rting agencies can’t divert from them, this has led to a constant stream of reliable and standardized information which is going to benefit the investors in determining where to invest their money.

  1. Reducing too many debt fund categories

Before the standardization of funds, there used to be too many categories of debt fund that used to confuse the investors about where to invest, this has changed now as SEBI has strictly defined 10 categories of debt which includes 5 of those which will mature in an year’s time. Experts have welcomed this categorization of debt funds because this has reduced the confusion and chaos in investment for investors which used to be so potent with so many debt fund categories overlapping in multiple types of the same.

  1. Impact on Large Fund Houses

With this change Large Fund houses will have to work more towards scheme consolidation as compared to the smaller ones. Most of the large fund houses have acquired many small fund houses during the duration of their existence this has led more than one of their schemes to be in same category. With the standardization of funds it will be ensured that these Large Fund houses need to rethink about their policies and to where they will position their funds and in which category. This is a big win for small fund houses as it somewhat evens the so uneven funds investment field.