WHO MOVED MY MF?

A guide on things to do if your mutual fund has been reclassified

In October 2017, the Securities and Exchange Board of India issued a circular outlining a framework to categorise and rationalise the many mutual fund schemes around. To comply, asset management companies are now merging, renaming or changing the fundamental attributes of their schemes. How does this affect an investor?

LOOK FOR CHANGES

The first thing you need to do is to check how the schemes in your portfolio have changed. In several cases, schemes have just been renamed; there is no alteration at the portfolio level or in investment style. For instance, the Aditya Birla Sun Life Top 100 Fund will now be known as Aditya Birla Sun Life Focused Equity Fund. Since the change is only in the nomenclature, an investor is not required to do anything.

CHANGE IN FUND OBJECTIVE

Should investors discover there is a change in the fundamental attribute of the scheme, they should seek expert guidance. “If an investor finds it difficult to match the objective of the scheme with his own financial goals, this is best done in consultation with his financial advisor,” says Brijesh Dalmia, director, Dalmia Advisory Services.

MERGER OF SCHEMES

Many MF houses have merged their schemes. The HDFC Premier Multicap fund, for instance, has now been merged with the HDFC Hybrid Equity Fund. The HDFC Premier Multicap fund was a pure equity fund but has now been merged with a scheme of hybrid category which invests in both equity and debt. If the investment was for a long-term financial goal and comfortable with taking a higher risk, the moderate risk in the merged scheme might not be suitable and the investor could consider a switch.

LOWER RETURNS

You might notice a lag in performance in some of the schemes in your portfolio, but you should not do anything in a hurry as experts predict better returns in the long run. “Benchmarking can be done more effectively after the new changes,” says Tarun Birani, founder, TBNG Capital advisors. “Earlier, large-cap funds used to have mid-caps in their portfolio; similarly, balanced funds also had high debt or high equity in the portfolio. Now everybody has to perform on merit, not manipulation.”

CHECK EXIT LOADS AND TAX BEFORE EXIT

Unplanned and premature exit can prove costly. In case of equity or equity-oriented funds, any investment less than a year old will attract 15 per cent short term capital gain tax. Investment older than a year will attract 10 per cent long term capital gain tax for annual gains exceeding a lakh.