Mutual Fund Updates 2021: In Case You Have Missed Take a Look Here.

Published by Sharekhan Education | December 22, 2021

Mutual Fund Updates 2021: In Case You Have Missed Take a Look Here.

When Saahil wanted to invest in Mutual Funds he was contemplating between growth and dividend options; but was confused when he saw “IDCW” instead of the dividend option staring back at him.  What is this “IDCW”; is it a new option in place of the dividend option he wondered? Actually NO!!  IDCW is just a new name given to the dividend option nothing else.  Just like the dividend option facelift there are numerous changes and updates that are constantly initiated by SEBI: the apex regulatory authority for the mutual fund industry.

As the market scales new heights, investing in Mutual funds is catching up every investor’s fancy.  Every day finds a hike in the number of investors in the mutual fund space. This can be a cause of concern if investors randomly invest without being aware of the risks associated with mutual fund investing don’t you think? To thus bring about transparency and help all investors take informed investing decisions SEBI constantly brings about new changes or updates that are typically aligned with their investor awareness initiatives. So whether it’s a name change or the introduction of a new category it is important that you as an investor know what these changes are and in case you missed the updates that took place in 2021 you can take a look here.

Change in  Risk-o-Meter

2020 and 2021 have been few of the most trying years in world history with the pandemic spreading havoc the world over. Many people succumbed to its wrath not just physically but also financially.  To help avoid wrong investing in such trying times SEBI in 2021 brought about a few important changes that were investor friendly. In the first quarter of the year SEBI enhanced the existing risk-o-meter to reflect a new category ‘Very High Risk’ and introduced specific parameters to assess risk within categories of different asset classes. In short, to evaluate the risk level of a scheme, the underlying securities of the scheme shall be assigned a value for each of the parameters based on which the risk-o-meter value will be calculated. This was done to help investors take better investing decisions while selecting high risk mutual funds.  This small change undoubtedly brought about better transparency in fund selection for all investors.

Definition of Multi Cap Funds:

Another useful change that was introduced was the clarity and transparency that SEBI brought about in defining Multi Cap Funds. Multi cap as the name suggests typically had a portfolio diversified across all market capitalizations. One problem though was the uncertainty in the percentage allocated to each market cap, which was left to the discretion of the fund manager and his view of the markets. What could have started out as a large cap oriented Multi Cap fund on the way could have lost out to say either the small cap or mid cap or even both. This generally exposed conservative equity investors to higher risks which maybe they were not comfortable taking. To do away with such issues SEBI redefined the Multi cap portfolio to hold a minimum of 25% of its assets in each market cap pushing it into very high risk category funds. This definitely was a welcome move as investors could now take wiser investing decisions.

NAV on Purchase:

The next change that was introduced in the first quarter was the rule regarding applicable NAV on purchase of a mutual fund scheme. The existing system to determine the purchase NAV had its own issues, so SEBI decided to revamp the rule a bit. According to this new rule, irrespective of the size of the investments, investors would be eligible to get the NAV of the day when their money reached the asset management company (AMC) (within the cut off timings) and not before that. Before the advent of this rule fund houses could tentatively allot units to the investor at the NAV of the date when the order was placed and the funds could be received later through the payment systems.  But with the advent of this new rule all mutual fund purchases will be dependent on the time of realization of funds; so if you are looking to get the same day NAV then it would be wise to opt for net banking or UPI where transfer of funds is almost instantaneous.

Renaming of Dividends:

Unlike the first quarter changes which were important in investing decision making the second quarter changes were more cosmetic in nature. The renaming of dividends to IDCW i.e. Income Distribution Cum Capital Withdrawal was a facelift given to the term dividends. The pure intention in doing so was to help clear the confusion regarding distribution of dividends from the minds of the investors who were of the opinion that the dividends distributed under the dividend option were only out of profits earned by the scheme and was not a part of the capital invested. Renaming dividends to IDCW helped clear this confusion on a larger scale. As a result all dividend option plans were renamed with IDCW in place of the term dividend as payout of IDCW, reinvestment of IDCW and transfer of IDCW plans.

To conclude, we can say that the updates brought about by SEBI in 2021 will surely prove useful and help investors take informed investing decisions. So if you had somehow missed these updates earlier it is good that you have read them now.

By enrolling in this stock market course, a learner can learn the basics and the various aspects of trading in Futures and Options Trading.

Happy Reading!!