SEBI has given mutual fund companies more flexibility than before. Earlier, active equity mutual funds (which mainly invest in shares) could keep extra money only in cash or money market instruments.
Now, under the new rules, fund managers can also invest this surplus money in gold and silver.
For example, a large-cap fund must invest at least 80% of its money in large-cap stocks. The remaining 20% can now be invested in gold or silver instruments.
The main benefit of this change is risk protection. When the stock market falls, investments in gold and silver can help protect the portfolio and reduce losses.
New “Life Cycle Funds” for Retirement and Children
In another big decision, SEBI has discontinued the old retirement-oriented and children-oriented mutual funds. These have been replaced by a new category called Life Cycle Funds.
These funds are designed for long-term goals of 5 to 30 years. Their main feature is automatic asset allocation based on age or time horizon:
In the early years, most of the money is invested in equities (shares) to generate higher returns.
As the investor ages or nears the goal, the fund manager gradually shifts money from equities to safer options like debt or gold.
To encourage long-term investing, these funds will charge a high exit load of up to 3% if money is withdrawn in the first year.
New Options and Stricter Rules for Fund Houses
SEBI has also made changes in how mutual fund companies can offer schemes.
Now, companies can launch both Value Funds and Contra Funds at the same time, which was not allowed earlier. However, SEBI has set a strict rule that the portfolios (share holdings) of these two funds must not be more than 50% similar.
Rules for thematic and sectoral funds have also been tightened. Mutual fund companies must ensure that at least 50% of the portfolio of any thematic fund is different from their other existing schemes.
This will prevent investors from unknowingly investing in multiple funds with similar stocks.
Benefits for Investors
These SEBI changes mainly improve diversification. Investors can now get exposure to stocks, bonds, gold, and silver within a single fund.
Life Cycle Funds will be especially helpful for people who are unsure about when and how to reduce risk in their investments. The fund manager will automatically adjust the portfolio over time.
Also, lower similarity between schemes means investors can choose truly different and innovative funds. This increases the chances of better returns in the long run.
