SEBI may Review Mutual Fund Categorisation Norms
23, Jan 2019
Prelims level : Economy Mains level : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
- The Securities and Exchange Board of India (SEBI) is mulling a review of its regulatory framework for categorisation of mutual funds (MFs) as market participants have sought a dynamic classification of companies instead of the current static mechanism wherein listed entities are ranked on the basis of market capitalisation.
- On a batch of petitions challenging supreme court verdict on sabarimala.
- The matter goes back to October 2017 when SEBI came out with the guidelines for categorisation of MF schemes. Large cap MFs, it said, were those which invested only in the top 100 companies in terms of market capitalisation.
- Mid-cap funds were those which invested in the next 150 companies and small-cap funds were those which invested in companies below the rank of 251 in terms of market capitalisation. Going by the latest market capitalisation of companies listed on the BSE, firms with a valuation of about Rs. 8,500 crores end up in the small-cap category.
- The view is that it would be better if the SEBI comes with a dynamic band or lays down a range in terms of market capitalisation for identifying firms as large-cap, mid-cap and small-cap.
- That would also take care of the impact of the market volatility on the valuation of the companies.
What are Mutual Funds?
- Mutual funds are in the form of Trust (usually called Asset Management Company) that manages the pool of money collected from various investors for investment in various classes of assets to achieve certain financial goals.
- We can say that Mutual Fund is trusts which pool the savings of large number of investors and then reinvests those funds for earning profits and then distribute the dividend among the investors. In return for such services, Asset Management Companies charge small fees.
- Every Mutual Fund / launches different schemes, each with a specific objective. Investors who share the same objectives invests in that particular Scheme. Each Mutual Fund Scheme is managed by a Fund Manager with the help of his team of professionals
Where does Mutual Funds usually invest their funds?
- The Mutual Funds usually invest their funds in equities, bonds, debentures, call money etc., depending on the objectives and terms of scheme floated by MF. Now a days there are MF which even invest in gold or other asset classes.