Economics Times

Is it time to start exiting unsuitable mutual fund schemes?

Mutual fund houses, it seems, are done with the process of the re-categorisation and rationalisation of schemes as per Sebi diktat. Many investors and their advisors have been waiting for the entire process to get over before starting to weed out unwanted schemes from the mutual fund portfolios. Is it time to spring-clean your mutual fund portfolio?

In case you are wondering what the fuzz is all about, here is the issue in a nutshell. Sebi, the market regulator, had asked mutual funds to re-categorise and rationalise their schemes in October, 2017. The basic idea was to make life easier for investors by weeding out the duplicate schemes, and offer uniform definitions to various categories across the mutual fund industry.

As fund houses started carrying out the exercise to comply with the Sebi order, they started merging some schemes and re-categorising their schemes to new categories. Many investors have seen their schemes change their names and categories. However, advisors have been asking investors to wait for the entire process of to get over before starting shuffling their portfolios. Finally, the wait is over.

“Many investors are realising that the names of their schemes have changed, some still don’t know about it. If an investor has figured out changes in his/her scheme, I would suggest, don’t get out of the scheme in haste. Hold on,” says Harish R Barke, Head – Financial Planning Services, Way2Wealth Securities.

That sounds familiar? Yes, mutual fund advisors still don’t want you to avoid any knee-jerk reaction to the changes in your portfolio. They believe that exiting the mutual fund schemes that have seen some changes should not be your first response.

Mutual fund advisors say there are two reasons why they are asking investors to hold on to their schemes. One, many investors wouldn’t know whether the changes in their scheme would make a big difference to their portfolio. Secondly, the exit window given by most fund houses to their investors is over. Also, exiting the schemes would mean paying extra money as exit load and capital gains tax.

“Figure out if there are any changes in the fundamental attributes of your schemes. If not, don’t bother to think about a change in name or category,” says Karthik Swaminathan, a certified financial planner based in Mumbai.

Remember, not all fundamental attribute changes should prompt you to get out of your schemes. “If the scheme is still in line with your portfolio allocation, you shouldn’t get out of it. If a largecap became a midcap and another midcap in your portfolio became largecap, your portfolio is perfectly balanced,” says Swaminathan.

Moreover, mutual fund advisors believe that a scheme becoming totally unwanted because of some changes is very less. “There have been mergers, where your scheme becomes another scheme, but those mergers have also being done among similar schemes. Massive side-tracking from the fundamental objectives was very rare. So, investors need not worry,” says Barke.

Many schemes have also changed their fund managers after the re-categorisation. Mutual fund advisors believe that investors should give time to the new scheme to perform. “If your scheme was a midcap fund and has been re-categorised as a large and midcap fund and now has a new manager, I don’t think you need to panic. You will pay exit load on exiting the scheme right now. You might stay and see how the scheme performs in a coming couple of quarters,” says Swaminathan.