Value Research classifies funds strictly based on their portfolio make-up. This is all there is to it.
The following table provides the detailed rules as to how Value Research identifies the categories for all mutual funds based on their portfolio characteristics.
|VR Fund category||Portfolio characteristics|
|Large cap||Funds investing at least 80% in large cap stocks|
|Large & mid cap||Funds investing at least 35% each in large and mid caps|
|Multi cap||Funds investing at least 25% each in large, mid and small caps|
|Mid cap||Funds investing at least 65% in mid caps|
|Small cap||Funds investing at least 65% in small caps|
|Flexi cap||Funds investing at least 65% in equity with no particular cap on large, mid or small|
|Value-oriented||Funds following the value/contrarian investment strategy and grouped under ‘Value’ or ‘Contra’ categories as per SEBI classification|
|ELSS||Equity funds with a lock-in of three years and tax benefit under Section 80C|
|International||Funds investing predominantly in foreign equities|
|Banking||Funds investing at least 80% in the banking sector|
|Infrastructure||Funds investing at least 80% in the infrastructure sector|
|Pharma||Funds investing at least 80% in the pharmaceuticals sector|
|Technology||Funds investing at least 80% in the technology sector|
|Thematic||Funds investing at least 80% in a theme as specified in the fund’s Scheme Information Document, and for which a separate fund category does not exist|
|Dividend Yield||Funds investing majorly in dividend-yielding stocks|
|MNC||Funds investing at least 80% in stocks of multinational companies|
|Energy||Funds investing at least 80% in companies belonging to the energy sector, such as power, oil & gas, etc.|
|PSU||Funds investing at least 80% in public-sector companies|
|Consumption||Funds investing at least 80% in the consumption theme|
|ESG||Funds investing at least 80% in companies that score high on environmental, social and governance (ESG) factors|
|Long duration||Funds with Macaulay duration of greater than 7 years at the portfolio level|
|Medium to long duration||Funds with Macaulay duration between 4 and 7 years at the portfolio level; under anticipated adverse situation - 1 to 7 years|
|Medium duration||Funds with Macaulay duration between 3 and 4 years at the portfolio level; under anticipated adverse situation - 1 to 4 years|
|Short duration||Funds with Macaulay duration between 1 and 3 years at the portfolio level|
|Money market||Funds investing in money-market instruments having maturity up to 1 year|
|Low duration||Funds with Macaulay duration between 6 and 12 months at the portfolio level|
|Ultra short duration||Funds with Macaulay duration between 3 and 6 months at the portfolio level|
|Liquid funds||Funds investing in debt and money-market securities with maturity of up to 91 days|
|Overnight funds||Funds investing in securities having maturity of 1 day|
|Dynamic bond||Debt funds investing across durations|
|Corporate bond||Funds investing at least 72% in AA+ and above-rated corporate bonds|
|Credit risk||Funds investing at least 58.5% in AA and below-rated corporate bonds|
|Banking and PSU Debt||Funds investing at least 72% in the debt instruments of banks, PSUs, public financial institutions and municipal bonds|
|Floater||Funds investing at least 58.5% in floating-rate instruments (including fixed rate ones converted to floating rate)|
|Gilt||Funds investing at least 80% in government securities|
|Gilt with 10-year constant duration||Funds investing at least 80% in government bonds such that the Macaulay duration of the portfolio is 10 years|
|FMP||Fixed maturity plans of pre-defined term|
|Target maturity||A debt scheme which has a specific maturity and invests in bonds whose maturity is in line with that of the underlying index|
|Others||Funds that do not classify under any existing debt category|
|Aggressive hybrid||Funds investing 65-80% in equity, and the rest in debt|
|Balanced hybrid||Funds investing at least 40-60% in equity, and the rest in debt|
|Conservative hybrid||Funds investing 10-25% in equity, and the rest in debt|
|Equity savings||Funds investing at least 65% in equity and equity related instruments, and at least 10% in debt|
|Arbitrage||Funds investing in arbitrage opportunities|
|Dynamic asset allocation||Funds which dynamically manage the asset allocation between equity and debt|
|Multi asset allocation||Funds investing in at least 3 different asset classes, with a minimum of 10% in each|
|Gold||Funds investing in gold|
|Silver||Funds investing in silver|
In addition to these broad rules, there are a few caveats that we follow for fund classification:
- We avoid creating new categories, particularly in the sectoral/thematic space, that have less than about four to five funds. This is because, for any meaningful comparison within a category, it needs to be of a certain minimum size. This avoids creation of multiple smaller categories which are not meaningful. All such funds are grouped in the ‘Thematic’ category.
- Some funds' basic portfolio characteristics change from time to time. In these cases, we move the fund to a different category based on whether the portfolio change has become consistent over a period, rather than a transitory one which may last only for a few months.
- At times, the investment mandate of a fund is such that it does not fit into any existing fund category. Such a fund is classified as ‘Thematic’ if it is an equity-oriented fund, and as ‘Others’ if it is a debt-oriented fund. Given their unique investment mandates, funds in these categories may not be comparable with one another.
Do Value Research fund categories differ from SEBI’s classification?
Yes, they do. We have not followed SEBI's system precisely.
Broadly speaking, we have distributed SEBI’s official 'Focussed', Index/ETF, Funds of Funds, and 'Solution-Oriented' funds into whichever categories they fitted in as per their portfolio. We believe this serves investors' needs much better.
Why does Value Research follow a different fund categorisation than the one standardised by SEBI for the industry’s adoption?
SEBI’s re-categorisation exercise in late 2017, brought in some kind of homogeneity within different fund categories. Prior to that, any fund or any category didn't have any formal definition as such.
Value Research, on the other hand, used to classify funds based on their portfolios since its inception. Following this principle, various funds could very well change their colour and complexion (in terms of their portfolio) and hence become part of a different peer set according to wherever they fit the best. So, for example, there could be a large-cap fund that could become a flexi-cap fund and on other occasions, could become a small-cap fund.
How does Value Research classification help you as an investor?
SEBI’s re-categorisation has definitely brought about a consistency with which AMC’s have to consistently follow a degree of style purity for funds in a given category. This helps investors know what they are getting into. In a way, the subsequent introduction of risk-o-meter by SEBI has enhanced this further as well.
However, if you want to unclutter your mind as to what will fulfill your needs, then you need to focus on your specific requirements. This is what Value Research’s category helps you to do.
For example, assume that you, as a passive investor, want to invest in the small-cap space. Then the rational thing for you would be to see how a passive fund investing in S&P BSE 250 SmallCap TRI compares with all other funds in the small-cap space, rather than comparing them to only the passive funds in the segment.
Here, Value Research categorisation helps you to do that. With SEBI’s categorisation, you would compare with only the passive funds in the space, which inherently assumes that they are superior to all active funds in that space, which may not necessarily turnout to be the case. And as an investor, you would prefer to choose the best from all that is comparable for your specific need.