Financial disruptions to watch out for this year! | Value Research We give you a heads up on the 8 big disruptions that you should brace for, as an investor
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Financial disruptions to watch out for this year!

We give you a heads up on the 8 big disruptions that you should brace for, as an investor

Preparing for disruption seems to be the favourite theme for investment seminars and newsletters this year. But as we bid goodbye to 2017 and welcome 2018, it would be short sighted not to acknowledge that we are already living in the midst of a lot of disruptions.

A person who did a Rip Van Winkle and went to sleep 40 years ago would probably be shell shocked at the pace of change that the world has witnessed since the eighties. The speed of doing business has accelerated. In the eighties, acquiring a television set or a telephone connection meant currying favours with the seller and waiting for many months. Today, Amazon is working on 'anticipatory shipping' - using predictive analytics to forecast what you will be ordering next - so that Amazon can 'pre-ship' your orders even before you place them! Earlier, communicating with friends overseas meant 'booking' an ISD call and waiting for hours. Now, the connect is instantaneous and you can video chat through Whatsapp or Skype. If technology was earlier associated only with software companies, today there's scarcely any sector where technology isn't upending conventional business models. In addition, Indian investors have to brace for efforts by regulators to reboot the governance and tax structures.

Therefore, if you found 2017 to be an unsettling year, 2018 promises to be no better. We give you a heads up on the eight big disruptions that you should brace for, as an investor, in this year. These are not Nostradamus style predictions (we have a healthy fear of forecasts) but likely trends based on our analysis of evolving developments in 2017. Here is the first development:

The great Indian mutual fund reboot
If you are a mutual fund investor, you need to prepare for likely name changes, mandate changes, mergers and fold-ups of some of your schemes within the first few months of 2018, as AMCs rush to comply with SEBI's new rules on fund categorisation. For a long time, the industry regulator had been asking Indian AMCs to rationalise their unwieldy menu of 1,800-odd schemes. But finding moral suasion ineffective, it put out a circular on 'Categorization and Rationalization of Mutual Fund Schemes' in October 2017 to enforce this clean-up.

The new rules clearly lay down five categories and 37 types of schemes that AMCs can offer. AMCs can only offer one scheme per type, with clear mandates. For instance, once the circular takes effect, a large-cap equity fund must invest a minimum 80 per cent in large-cap stocks, a mid-cap fund must invest a minimum 65 per cent in mid caps, a short-duration debt fund must stick with one- to three-year duration and so on. For good measure, SEBI has also defined what large-cap (top 100 stocks by market cap), mid-cap (100th to 250th stock by market cap) and small-cap stocks (below the 250th stock) are. The rules apply to all existing and new open-end schemes.

AMCs were given two months' time to come back with their plans and another three months after that to wind up, merge, rename or reclassify their schemes to fall in line. As we write this, most AMCs have approached the regulator with their proposals and SEBI has been approving them. The changes will take effect over the next three months.

As investors, you may need to prepare for schemes in your portfolio to a) change their mandate to fit into one of SEBI's categories; b) merge, if there is an overlap; c) wind up, if the scheme is duplicated or the category itself isn't permitted by SEBI; d) rejig their portfolios - sell some stocks and buy others - to stay within the large/mid/small-cap definitions. In the case of fundamental attribute changes, AMCs will intimate you through email/post and give you an exit option. For smaller changes, you should expect an addendum in newspapers.

What to do: While the mutual fund reboot will require some extra vigilance on your part. Just because you have received an intimation of a change there's no need to exercise exit options in all cases. Evaluate if a scheme sits well with your investment goals and risk profile after the changes. If it doesn't, you can streamline your portfolio by switching your money into a fund that does. If it does, just stay put.

We will tell you about the other disruptions over the next few days:

The rise of ETFs
Bitcoin regulations and blockchain
Big data and the taxman
Big banking reset
The return of global risks
Reversing rate cycle
More tech in investing


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