Dhirendra Kumar explains the rationale behind mutual funds' categorisation
Why aren't the names of mutual funds made simpler; for instance, all large caps could be named as the name of the AMC and large-cap fund. Similarly for all other funds, to eliminate confusion?
- Manoj Kumar Agarwal
At a certain level, this is an individual fund company's decision. SEBI did mutual funds reclassification into defined categories to create a homogeneous set of comparable funds. The real problem was that the fund companies used to come with new kinds of funds that were alike. So the regulator wanted to create a framework whereby mutual funds don't launch too many new funds, with new packaging, when they are actually old or of a similar kind. That is why these categories have been created, and every AMC can launch only one fund in each category. This was the problem that was meant to be solved, not the terminology.
But at the same time, I would say that, with the help of methodical classification, a mutual fund category is assigned to every fund that investors can see, which is good enough. Value Research had created such categories long back where you have all the comparable funds grouped, even if they are called differently. We know that some fund companies call a large-cap fund a blue-chip or a mid-cap fund an emerging blue chip, so I agree that your proposition would simplify the names. But we should not forget that mutual funds are also a consumer product. People at the AMC try to make the name interesting to persuade or impress the investors. Earlier, the focus on making it interesting was far more than managing it in many cases, but now that's fine. I don't think it's a big problem to deal with because of how investors are being served the information.