Impact on Investors: Categorization and Rationalization of Existing Mutual Funds

Will this Change Past Performances?

When the fund is changing its mandate for change in the portfolio strategy in order for the categorization and rationalization to come into effect, then it is quite obvious that the earlier strategy would also result in the past performance not being valid. 

It is a given that a new strategy has come about and taken over, so you may not expect past returns going forward from this, and you do not know how the strategy will play out. When the fund changes its nature, that means the past pattern is not valid going forward.

How Does this Help Investors?

– It was earlier hard to gauge which is large-cap and which was not, and with every fund having its own definition, it was quite hard to carry out the comparisons correctly. There were times when large-cap funds could be called mid-cap funds easily. So the setting of the definitions helps eliminate the cap-associated confusion to some extent.

– Over time, there have been just too many schemes that have come into existence. So the clean-up will, without a doubt, will reduce the clutter.

– There were also a lot of unbalanced schemes that were stuffed with a lot more equity than was required. This made it difficult to compare the two balanced funds on the basis of returns.

– One of the biggest advantages of this is that it makes mutual fund comparisons much easier. This will also lead to comparisons within the same categories, and it will without a doubt be giving relative comparisons across the same categories, which will make much more sense. It would not be like comparing oranges and apples, would it?

Conclusion

There will always be newer ways for classification, that’s no doubt at all. Soon this classification may be outdated too. But for now, we have a better classification than before that does bring out some tremendous benefits for investors, fund houses, and all the associates.

To be very fair, this is quite a big change, and AMCs will take time to stabilize their portfolios and reclassify schemes. Things are changing for good, and some investors might feel like it is a time of uncertainty, but you cannot resist a change that happens for good. Also, you have definitely read through the benefits of it.